U.S. stocks edge higher; solid earnings season continues
Introduction & Market Context
DigitalOcean Holdings Inc (NYSE:DOCN) presented its Q1 2025 earnings results on May 6, showcasing 14% year-over-year revenue growth as the cloud provider continues its strategic focus on Digital Native Enterprises (DNEs) and artificial intelligence offerings. The company’s stock showed modest premarket gains of 1.95%, trading at $33.40 following the results, according to available market data.
The cloud infrastructure provider maintained its full-year 2025 guidance while highlighting significant growth in its high-value customer segments and AI-related revenue. This quarter’s performance follows a strong Q4 2024, which had previously driven a 21% stock surge.
Quarterly Performance Highlights
DigitalOcean reported Q1 2025 revenue of $211 million, representing 14% year-over-year growth compared to $185 million in Q1 2024. The company’s Annual Run-rate Revenue (ARR) reached $843 million, also up 14% from the prior year. Notably, incremental ARR grew 53% year-over-year to $23 million.
As shown in the following revenue and retention metrics chart, the company improved its Net Dollar Retention (NDR) rate to 100%, up 300 basis points from 97% in Q1 2024, while Average Revenue Per User (ARPU) increased 14% to $108.56:
The company highlighted three key performance achievements for the quarter: strong financial results with 14% revenue growth and AI ARR growth exceeding 160% year-over-year; increased product velocity with more than five times the amount of product features released compared to Q1 2024; and growing traction with Digital Native Enterprises, evidenced by 41% year-over-year revenue growth from customers with $100K+ run-rate, who now drive 23% of total revenue.
Strategic Initiatives
DigitalOcean’s strategic execution centers around four key pillars: growth strategy, financial targets, product development, and go-to-market approach. The company is targeting over 4 million Digital Native Enterprises with its cloud platform, positioning itself as the "simplest, scalable, approachable cloud" option. By 2027, DigitalOcean aims to achieve 18-20% revenue growth and mid-teens adjusted free cash flow, with longer-term goals of 20%+ revenue growth and 40%+ weighted Rule of 40.
The company’s focus on higher-spending customers is yielding results, with its Scalers+ segment (customers spending $100K+ annually) showing accelerating growth. This segment grew revenue 41% year-over-year in Q1 2025, a significant improvement from 16% growth in Q1 2024. Scalers+ customers now represent 23% of total revenue, up from 19% a year ago:
DigitalOcean’s product strategy includes both core cloud platform enhancements and AI/ML capabilities. During Q1, the company released several new features, including DOKS 1K node scaling, large database plans, BitBucket integration, and Network Load Balancer. On the AI front, DigitalOcean introduced NVIDIA (NASDAQ:NVDA) HGX H200s GPUs and AMD (NASDAQ:AMD) Instinct M1300X GPUs, while reporting that over 5,000 customers and 8,000 agents have been deployed on its GenAI Platform.
Financial Analysis
While maintaining revenue growth, DigitalOcean reported that Q1 cash outflows were driven by approximately $18 million in additional growth capital for its Atlanta data center and around $14 million in annual employee bonus payments. The company noted that its 2025 capital expenditure plan was intentionally front-loaded to drive in-year growth, and it remains on track to deliver 16-18% adjusted free cash flow margins for the full fiscal year.
In a significant financial development, DigitalOcean announced an $800 million credit facility as the first step in refinancing its existing 2026 convertible notes. The facility includes a $500 million Term Loan A with a nine-month delayed draw feature and a $300 million revolver to replace the existing undrawn $250 million facility. The company secured commitments from seven tier 1 investment banks and leading global relationship banks, with pricing starting at Term SOFR+175 basis points at current net leverage levels.
Forward-Looking Statements
DigitalOcean maintained its financial outlook for both Q2 2025 and the full fiscal year. For Q2, the company expects revenue between $215.5-$217.5 million, representing 12-13% growth, with an Adjusted EBITDA margin of 38-40% and Non-GAAP diluted net income per share of $0.42-$0.47.
For the full year 2025, DigitalOcean continues to project revenue of $870-$890 million (11.5-14% growth), with an Adjusted EBITDA margin of 37-40%, Non-GAAP diluted net income per share of $1.85-$1.95, and an Adjusted Free Cash Flow margin of 16-18%:
The company’s long-term market opportunity remains substantial, with DigitalOcean targeting the $140 billion+ Digital Native Enterprises segment within the broader $400 billion+ public cloud market. The company estimates there are approximately 4 million Digital Native Enterprises in total, with 171,000 currently using DigitalOcean’s platform:
DigitalOcean continues to position itself as a differentiated cloud provider for developers and growing technology companies, with a focus on simplicity, scalability, and approachability as its key competitive advantages in a market dominated by larger hyperscalers.
Full presentation:
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