DigitalOcean Holdings, Inc. Q1 FY2025 earnings

DigitalOcean’s first quarter of fiscal 2025 showed strong profit growth on moderate revenue expansion. Revenue was $210.7 million, up 14.1% from the prior-year quarter. Gross profit reached $129.4 million, up 18.6%. Operating income jumped 226.2% to $37.6 million. Net income rose 170.2% to $38.2 million, and diluted earnings per share were $0.39, up 160.0%. Gross margin expanded to 61.4%, up 2.3 percentage points. Operating margin climbed to 17.9%, up 11.6 percentage points. On a non-GAAP basis, adjusted EBITDA was $86.3 million, adjusted EBITDA margin was 41%, non-GAAP net income was $55.4 million, and non-GAAP diluted net income per share was $0.56.

Customer metrics point to deeper engagement with larger accounts. Higher Spend Customers totaled roughly 171,000 as of March 31, 2025, up from roughly 157,000 a year earlier. They generated 88% of revenue, up from approximately 87%. The company classified 151,097 of them as Builders, 19,028 as Scalers, and 562 as Scalers+. Average revenue per customer increased, and annual run-rate revenue grew as well. Net dollar retention rate improved to 100% from 97%. Revenue remains geographically diverse: 37% from North America, 28% from Europe, 24% from Asia, and 11% from the rest of the world. The top 25 customers accounted for approximately 9% of revenue, so customer concentration remains limited.

Cash generation was steady, but capital spending and buybacks consumed cash. Operating cash flow was $64.1 million, down 3.9%. Capital expenditures were $61.96 million, up 41.9%. Deferred revenue was $5.64 million, up 3.0%. The company repurchased and retired 1,564,254 shares for $59 million under a $140 million program that runs through fiscal 2025. It also had $28.1 million of fixed payment obligations for co-location leases that had not yet commenced, with expected starts between April 2025 and August 2025 and a weighted average lease term of 4.9 years.

Operating expense trends were mixed. The company said research and development expenses would increase in absolute dollars as it invests in the platform. Sales and marketing expenses are also expected to rise in absolute dollars. General and administrative expenses may increase in absolute dollars. The MD&A attributes the first-quarter decrease in general and administrative expenses to lower personnel costs and costs in the prior-year quarter tied to acquisition-related deferred compensation and executive reorganization. Income tax expense increased sharply, driven by higher pretax income and lower NOL utilization. Other income, net rose on foreign currency gains, partly offset by lower interest income.

Management expects to keep investing in infrastructure and product development, which could pressure cost of revenue and operating expenses. Macroeconomic risks include trade tensions and tariffs, inflation, interest rates, supply chain disruptions, and geopolitical instability in Russia, Ukraine, and the Middle East. The company also noted a reasonable possibility that the U.S. valuation allowance could be released in a future period, which would reduce income tax expense. On May 5, 2025, it entered a new 2025 Credit Facility and terminated its 2022 Credit Facility. It plans to use a portion of the undrawn facility to repurchase, repay, acquire, or settle a portion of its Convertible Notes.