2023-04-25 08:32:47 ET
DigitalOcean ( NYSE: DOCN ) shares fell more than 3% in pre-market trading on Tuesday as Needham downgraded the cloud service software company, citing "sustained pressures" on the big cloud companies.
Analyst Mike Cikos lowered his rating on DigitalOcean ( DOCN ) to hold from buy, noting that there have been a number of data points to show "deteriorating trends," including Amazon ( AMZN ) CEO Andy Jassy's letter to shareholders , as well as the reduced revenue outlook from OVH Group SAS and commentary about longer sales cycles in March and April.
"A more challenging demand environment leads to greater uncertainty for DigitalOcean's ability to meet [second-half 2023] revenue expectations, which already assumed larger intra-quarter revenue generation," Cikos wrote in an investor note.
Cikos added that DigitalOcean ( DOCN ) is likely to be hit harder than OVH Group because of its exposure to small and medium-sized businesses, while also dealing with "lingering questions around its longer-term growth."
In addition, DigitalOcean ( DOCN ) has seen a number of changes in its C-suite in recent months, including the retirement of its CFO and the departures of its Chief Product and Chief Marketing Officers, all of which create "greater execution risk," Cikos posited.
Analysts are largely bullish on DigitalOcean ( DOCN ). It has a BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a HOLD . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates DOCN a BUY .
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DigitalOcean slips as Needham downgrades, citing pressures on cloud providers