Summary
DigitalOcean's fiscal 2026 second quarter paired rapid revenue growth with clear margin compression. Revenue was $281.2 million, up 28.6% from the prior-year quarter. Gross profit was $154.7 million, up 18.1%. Gross margin was 55.0%, down 4.9 percentage points. Operating income was $29.4 million, down 17.5%. Operating margin was 10.4%, down 5.8 percentage points. Net income was $35.4 million, down 4.3%. Diluted earnings per share was $0.29, down $0.10. For the six months ended June 30, 2026, revenue was $539.1 million, up 25.5%, and gross margin was 55.5%, down 5.1 percentage points. The quarter showed that growth is coming with higher infrastructure costs.
Operational metrics pointed to expanding enterprise usage. DNE customers were approximately 22,000 as of June 30, 2026, up from approximately 20,000 as of June 30, 2025. Revenue from DNE customers was 67% of total revenue in the quarter, up from approximately 59% in the prior-year quarter. ARR was $1,125 million as of June 30, 2026, up from $875 million as of June 30, 2025. AI Customer ARR was $234 million, up from $75 million. The company attributed the revenue increase to a 45% increase in revenue from DNE customers, driven by new customers, AI customers, and higher usage from existing customers.
The pressure on margins came from data center expansion. The company said the gross margin decline resulted from incurring costs for data center expansions ahead of the revenue ramp from new data centers. On a non-GAAP basis, adjusted operating income was $67.5 million compared with $61.7 million. Adjusted operating income margin was 24% compared with 28%. Adjusted EBITDA was $113.6 million compared with $89.5 million. Adjusted EBITDA margin was 40% compared with 41%. Non-GAAP net income was $54.8 million compared with $57.8 million. Non-GAAP diluted net income per share was $0.45 compared with $0.59. Management expects operating expenses to increase in absolute dollars as it invests in the platform and product offerings.
Cash generation improved, while capital spending also rose. Operating cash flow was $110.0 million, up 19.0%. Capital expenditures were $41.6 million, up 25.3%. Deferred revenue was $53.0 million, up 370.9%, on a current portion basis. The company's top 25 customers made up approximately 20% and 9% of revenue in the three months ended June 30, 2026 and 2025, respectively. Sales and marketing expense was approximately 8% of revenue. Revenue mix was 47% North America, 22% Europe, 22% Asia, and 9% rest of the world. The company operates in approximately 190 countries, and around two-thirds of revenue has historically come from outside the United States.
Risks include macroeconomic and geopolitical conditions, tariffs, export controls, supply chain disruptions, high interest rates, and military conflicts. The filing also points to continued investment in data center capacity as a factor that can weigh on gross margin until new capacity ramps. Management intends to pursue strategic partnerships and acquisitions, and it has completed acquisitions of Paperspace and Cloudways in recent years. The company plans to address convertible notes maturing within the next 12 months with revolver capacity, cash on hand, and cash from operations. It also has significant future data center lease obligations that have not commenced. The quarter's results leave the company balancing strong AI and enterprise demand against a heavier cost base.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $281.2M | $257.9M | +9.0% | $218.7M | +28.6% |
| Gross profit | $154.7M | $144.7M | +6.9% | $130.9M | +18.1% |
| Gross margin | 55.0% | 56.1% | -1.1 pp | 59.9% | -4.9 pp |
| Research & development | $57.5M | $48.8M | +17.8% | $39.6M | +45.1% |
| Sales & marketing | $22.6M | $21.7M | +4.1% | $19.3M | +17.0% |
| General & administrative | $45.2M | $37.6M | +20.1% | $36.4M | +24.2% |
| Total operating expenses | $125.3M | $108.1M | +15.9% | $95.3M | +31.4% |
| Operating income (loss) | $29.4M | $36.6M | -19.7% | $35.6M | -17.5% |
| Operating margin | 10.4% | 14.2% | -3.7 pp | 16.3% | -5.8 pp |
| Net income (loss) | $35.4M | $15.8M | +124.7% | $37.0M | -4.3% |
| Net margin | 12.6% | 6.1% | +6.5 pp | 16.9% | -4.3 pp |
| Diluted EPS | $0.29 | $0.15 | +$0.14 | $0.39 | -$0.10 |
Risks
Gross margin fell to 55.0% in FY2026 Q2 from 59.9% in FY2025 Q2, down 4.9 pp, and operating margin fell to 10.4% from 16.3%, down 5.8 pp, as the company incurred data center expansion costs in advance of the revenue ramp from new data centers. Cost of revenue rose 44% in the quarter on higher depreciation, co-location and third-party license costs.
As of June 30, 2026 the company had $2,759.3 million of estimated undiscounted fixed payment obligations, primarily for co-location leases that have not yet commenced and are not on the balance sheet, plus $281.6 million of expected finance lease payments for servers. These leases commence between July 2026 and June 2028 with a weighted-average term of 11.2 years, locking in substantial fixed costs regardless of demand.
As of June 30, 2026, $312.3 million of 2026 Convertible Notes mature within the next 12 months, and $937.3 million aggregate principal of convertible notes was outstanding. The company plans to settle the 2026 notes by drawing on its Revolving Facility and using cash on hand, and in July 2026 repurchased $471.8 million of 2030 Convertible Notes funded by a concurrent equity offering.
Customer concentration increased sharply: the top 25 customers made up approximately 20% of revenue in the three months ended June 30, 2026, up from approximately 9% in the three months ended June 30, 2025. Revenue from DNE Customers rose to 67% of total revenue in the quarter from approximately 59% a year earlier, increasing dependence on a narrower set of large accounts.
Growth is increasingly tied to AI workloads, with AI Customer ARR of $234 million as of June 30, 2026, up from $75 million as of June 30, 2025, and total ARR of $1,125 million, up from $875 million. A slowdown in AI infrastructure demand or pricing pressure on GPU capacity would disproportionately affect the growth trajectory.
Other expense, net was $14.3 million for the six months ended June 30, 2026 versus other income, net of $10.6 million a year earlier, driven by a $13.6 million increase in interest expense mostly from finance leases and equipment financing arrangements, plus a $2.4 million loss on extinguishment of the Term Loan Facility. Rising leverage costs weigh on net income, which fell 31.9% year to date.
Research and development expense rose 45% in FY2026 Q2 to $57.5 million, driven by $17.8 million of higher personnel costs from headcount growth, stock-based compensation for new hire and ongoing grants, and annual merit-based salary raises. Total stock-based compensation rose to $32.7 million in the quarter from $21.1 million, and continued compensation inflation could pressure already declining operating income.
The company cites unfavorable economic conditions including inflationary pressures and high interest rates, supply chain disruptions, tariffs, export controls and sanctions, and geopolitical conflicts involving Russia, Ukraine, Iran and the Middle East as factors that could reduce business investment in information technology and slow growth. Roughly two-thirds of revenue has historically come from customers outside the United States, adding exposure to trade and currency volatility.
SaaS KPIs
All quarters →Adjusted EBITDA Margin
ARR
Summary, forecast, risks and KPIs are extracted from DigitalOcean Holdings, Inc.'s SEC filings for Q2 FY2026 (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 1, 2026.