2023-06-22 08:42:54 ET
DigitalOcean ( NYSE: DOCN ) shares fell nearly 6% in pre-market trading on Thursday after investment firm Piper Sandler downgraded the cloud software company, citing "multiple concerns."
Analyst James Fish lowered his rating on DigitalOcean ( DOCN ) shares to underweight from neutral, but kept the per-share price target of $35, noting that the company's high exposure to small and medium-sized businesses, usage model, revenue slowdown are some of the issues negatively impacting the company.
"DigitalOcean is the most exposed named in our coverage to SMBs and has a ~100% usage-based model that results in more macro sensitivity," Fish wrote in an investor note. "The macro environment isn't improving, with the NFIB's Small Business survey in a downtrend. Tighter budgets and cloud optimizations will potentially limit upsell and cross-sell opportunities."
In addition to the aforementioned issues, Fish also expressed concern about "waning" portfolio competitiveness as competitors catch up, a "questionable" capital usage that has focused on stock buybacks rather than transforming its portfolio or fixing its capital structure, as well as a "stretched" valuation after the stock has jumped more than 60% over the past six months.
Fish also said that DigitalOcean ( DOCN ) has "missed the real AI opportunity" by not offering GPU-as-a-service, pointing out that as AI apps scale, they will need GPUs, which could result in higher churn if the company doesn't address the issue.
Analysts are largely cautious 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 HOLD .
More on DigitalOcean
- DigitalOcean Holdings: Improving Prospects (Rating Upgrade)
- DigitalOcean: Leading The Way In Cloud Services For The Developer Community
- DigitalOcean: A Long-Term Compounder
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DigitalOcean stumbles as Piper Sandler downgrades, citing 'multiple concerns'