Summary
DigitalOcean Holdings reported its first quarter as a public company with revenue of $93.66 million, up 28.7% from the prior-year quarter. Net dollar retention was 107%, an increase of 600 basis points from the first quarter of 2020. Average revenue per customer rose 20% to $53.68 from $44.68. The company served approximately 585,000 customers at March 31, 2021, up 7% from a year earlier. Customers were spread across approximately 185 countries. For the quarter, 38% of revenue came from North America, 29% from Europe, 23% from Asia, and 10% from the rest of the world. The top 25 customers made up approximately 10% of revenue, so there was no material customer concentration. CEO Yancey Spruill said the quarter delivered faster revenue growth, higher adjusted EBITDA margin, and substantial improvement in capital efficiency.
The GAAP results improved across the board. Gross profit was $54.12 million, up 42.0% from the prior-year quarter. Gross margin was 57.8%, up 5.4 percentage points. Operating income was $3.25 million, compared with a prior-year operating loss, and operating margin was 3.5%, up 20.6 percentage points. Net loss was $3.34 million, narrower than the prior-year quarter. Diluted loss per share was $0.07, an improvement from the prior-year quarter. On a non-GAAP basis, adjusted EBITDA was $30.7 million and adjusted EBITDA margin was 33%, compared with adjusted EBITDA of $18.4 million and a 25% margin in the prior-year period. Adjusted gross profit was $73.5 million, or 79% of revenue. The company said adjusted EBITDA margin expanded by 740 basis points.
The balance sheet changed dramatically after the IPO. DigitalOcean sold 16.5 million shares for net proceeds of $723.1 million and used a portion to pay off all outstanding debt. Cash, cash equivalents, and restricted cash were $562.3 million with zero debt as of March 31, 2021. Operating cash flow was $19.8 million, up 1399.3% from the prior-year quarter. Capital expenditures were $22.4 million in the quarter, up 8.3% from the prior-year quarter. Capital expenditures as a percentage of revenue were 25%, down from 44% in the prior-year period, a decrease of more than 1800 basis points. Deferred revenue was $4.92 million on a current portion basis.
Management issued guidance for the next quarter and the full fiscal year. For the second quarter of 2021, the company expects adjusted EBITDA margin of 30% to 31% and fully diluted weighted average shares outstanding of 117 to 119 million. For the full year 2021, it expects adjusted EBITDA margin of 30% to 31%, fully diluted weighted average shares outstanding of 115 to 117 million, and capital expenditures as a percentage of revenue of 25% to 26%. DigitalOcean also issued revenue guidance for both periods. It did not reconcile non-GAAP guidance to GAAP on a forward-looking basis, citing unreasonable effort.
Several risks could weigh on future results. DigitalOcean warned that recent growth may not be indicative of future growth and pointed to its history of operating losses and limited operating history. Other disclosed risks include the ability to attract and retain customers, breaches in security measures, the ability to release updates and new features, competitive markets, rapidly evolving privacy and data security laws, and the challenges of managing growth. General market, political, economic, and business conditions also remain factors. The company said COVID-19 has not had a significant impact on operations or financial performance to date, though the extent of the pandemic's impact remains uncertain.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $93.7M | — | — | — | — |
| Gross profit | $54.1M | — | — | — | — |
| Gross margin | 57.8% | — | — | — | — |
| Research & development | $22.4M | — | — | — | — |
| Sales & marketing | $10.4M | — | — | — | — |
| General & administrative | $18.0M | — | — | — | — |
| Total operating expenses | $50.9M | — | — | — | — |
| Operating income (loss) | $3.3M | — | — | — | — |
| Operating margin | 3.5% | — | — | — | — |
| Net income (loss) | -$3.3M | — | — | — | — |
| Net margin | -3.6% | — | — | — | — |
| Diluted EPS | -$0.07 | — | — | — | — |
| Customers | 585,000 | — | — | — | — |
Risks
DigitalOcean competes with large diversified technology companies like Amazon (AWS), Microsoft (Azure), Google (GCP), IBM and Oracle, as well as niche providers such as OVH, Vultr, Heroku and Linode. Many competitors have greater name recognition, larger budgets, and the ability to bundle products, which could harm DigitalOcean's business.
DigitalOcean operates fourteen data centers through leases with third-party providers in the United States, India, Germany, the United Kingdom, Canada, the Netherlands and Singapore. Service disruptions, capacity constraints, lease renewal issues, or damage from natural disasters could negatively impact the platform's performance and customer satisfaction.
DigitalOcean depends on its executive officers, including CEO Yancey Spruill, and a number of executive officers have only recently joined the company. Competition for engineers experienced in cloud computing and infrastructure is intense, and failure to retain or motivate key personnel could harm future growth prospects.
Substantial blocks of DigitalOcean common stock are subject to lock-up agreements that restrict transfer until after the release of earnings for the quarter ended June 30, 2021. Up to 20% of shares held by employees and other stockholders may be sold earlier under certain conditions, and future sales or the perception of such sales could depress the market price of the common stock.
The COVID-19 pandemic may disproportionately impact DigitalOcean's core customer base of individual developers, early stage start-ups and small-to-medium size businesses, which could reduce spending, delay purchasing decisions and increase churn. MD&A states that to date the pandemic has not had a significant impact on operations or financial performance, but the extent remains uncertain.
DigitalOcean relies on a self-service customer acquisition model for the significant majority of its revenue, and customer contracts are primarily month-to-month with no minimum commitments, permitting termination without advance notice. If the self-service model is not as effective as anticipated, future growth will be impacted.
DigitalOcean continuously evaluates data center capacity requirements, and misestimating them could lead to either insufficient capacity or excess costs. MD&A notes that capital expenditures as a percentage of revenue declined from 44% in the quarter ended March 31, 2020 to 25% in the quarter ended March 31, 2021, and will continue to decline, but failure to accurately project usage increases could adversely affect results.
As a newly public company, DigitalOcean must comply with Section 404 of the Sarbanes-Oxley Act, requiring management to assess internal controls over financial reporting for the fiscal year ending December 31, 2022, and the company will need to hire additional accounting and financial staff. Any material weakness could lead to loss of investor confidence and a decline in stock price.
SaaS KPIs
All quarters →Adjusted EBITDA Margin
Adjusted EBITDA
Average Revenue Per Customer (ARPU)
Annual Run-Rate Revenue (ARR)
Adjusted Gross Margin
Total customers
Adjusted Gross Profit
Capital Expenditures as a Percentage of Revenue
Summary, forecast, risks and KPIs are extracted from DigitalOcean Holdings, Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.