TLDR
- DigitalOcean (DOCN) stock jumped 21% in pre-market and closed up 9.8% after strong Q4 2024 results
- Q4 revenue reached $205 million, up 13% year-over-year with improved customer retention
- Scaler Plus customers (highest tier) grew 17% year-over-year and contributed 22% of total revenue
- AIML platform exceeded expectations with over 160% ARR growth
- 2025 revenue guidance of $870-890 million represents approximately 13% growth at midpoint
DigitalOcean (NYSE: DOCN) shares closed at $40.82 on Tuesday, February 25, 2025, marking a 9.8% increase from the previous close.
The cloud computing provider’s stock had jumped as much as 21% in pre-market trading after the company released its fourth-quarter 2024 financial results.
The company reported Q4 revenue of $205 million, representing a 13% increase compared to the same period last year. This performance exceeded Wall Street analysts’ expectations for revenue, earnings per share (EPS), and EBITDA (earnings before interest, taxes, depreciation, and amortization).
One of the key drivers behind DigitalOcean’s strong quarterly performance was the impressive growth in spending from its top-tier customers. The company’s Scaler Plus customer segment, which now makes up 22% of total revenue, grew by 17% year-over-year, with their contribution to overall revenue jumping by 37% compared to Q4 2023.
Customer retention also showed improvement, with net dollar retention (NDR) rising to 99% in Q4 2024, up from 96% in the same quarter of 2023. This metric indicates that existing customers are spending more on DigitalOcean’s services, although there is still room for growth as the figure remains below 100%.
DigitalOcean’s AIML (Artificial Intelligence and Machine Learning) platform performed particularly well, exceeding growth expectations with over 160% ARR (Annual Recurring Revenue) growth. This suggests strong adoption of the company’s AI-related offerings in a competitive market.
Profitability metrics were another bright spot in the quarterly report. The company maintained a robust adjusted EBITDA margin of 42% for both the fourth quarter and the full year 2024. Gross margin improved to 62% in Q4, representing a 500 basis point increase compared to the same period last year.
Free cash flow margin stood at 18% for the fourth quarter, while the company reported non-GAAP diluted net income per share of $0.49, up 11% year-over-year. DigitalOcean ended the quarter with $428 million in cash and cash equivalents.
Earnings Calll
Looking ahead to 2025, DigitalOcean provided revenue guidance in the range of $870 million to $890 million, which represents approximately 13% growth at the midpoint. The company also projected adjusted EBITDA margins between 37% and 40% for the full year, along with adjusted free cash flow margins of 16% to 18%.
During the earnings call, CEO Paddy Srinivasan highlighted the company’s success in attracting customers who were previously disappointed with their experience using hyperscale cloud providers.
“Our migration program offers a scalable platform that’s simpler and more cost-effective,” Srinivasan noted. “We’re targeting tech-native companies with globally distributed, bandwidth-intensive workloads that require elasticity.”
CFO Matt Steinfort addressed questions about the company’s EBITDA performance, explaining that DigitalOcean had built in some cushion for R&D to accelerate the product roadmap but managed resources efficiently by focusing on top initiatives. The wide guidance range for 2025 reflects potential variability in expenses as the company balances improving margins with investments in revenue-driving product capabilities.
Despite the positive quarterly results, DigitalOcean still faces some challenges. The company is working to improve growth in the non-Scaler Plus customer segment, which is not expanding as quickly as desired. Additionally, the planned investment in a new Atlanta data center may lead to a temporary dip in gross margins.
Stock Volatility
DigitalOcean’s stock has been volatile over the past year, with 21 moves greater than 5%, though Tuesday’s jump represents an unusually large movement. The stock is up 19.1% since the beginning of 2025 but still trades 12.6% below its 52-week high of $46.69 reached earlier in February 2025.
DigitalOcean’s Q4 results come amid broader market concerns about AI-related investments. Recent rumors that Microsoft is trimming some data center projects had raised questions about whether AI infrastructure spending might be slowing down. H
owever, DigitalOcean’s strong performance in its AIML segment suggests continued demand in this area, at least among its customer base.
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