Summary
DigitalOcean closed fiscal 2024 with fourth quarter revenue of $204.9 million, up 13.3% from $180.9 million in the prior-year quarter. Net income was $18.3 million, up 14.6% from $15.9 million a year earlier, and diluted EPS reached $0.19 against $0.17. Operating income climbed to $32.5 million, up 196.2% from $11.0 million. Adjusted EBITDA, a non-GAAP measure, came in at $86 million for the quarter, up 17%, at a 42% margin.
Margins widened sharply. Gross margin was 61.5%, up from 57.1%, and gross profit rose 22.1% to $126.1 million. Operating margin reached 15.9%, up from 6.1%. Some of that lift reflects a presentation change. DigitalOcean moved customer support personnel costs and certain other costs out of sales and marketing and research and development and into cost of revenue, then recast 2023 amounts to match. The shift did not change prior-year income from operations, net income or EPS. Management tied the gross margin gains to lower co-location, bandwidth and ancillary equipment costs as a percentage of revenue, partly offset by continued investment in AI/ML offerings.
Cash generation was the softer spot. Net cash from operating activities was $71.3 million for the quarter, down 11.4% from $80.5 million, even as revenue grew. Capital expenditures were $45.3 million, down 13.3% from $52.2 million. On a full-year basis, operating cash flow was $282.7 million, up 20.3%, while capital expenditures rose 49.3% to $178.2 million as the company built out GPU capacity. For the full year, revenue was $780.6 million, up 12.7%, net income was $84.5 million, up 335.3%, and diluted EPS was $0.89. Adjusted free cash flow, a non-GAAP measure, was $37 million in the quarter versus $29 million a year earlier, and $135 million for the year versus $156 million.
The customer mix kept tilting toward larger accounts. Scalers+ customers, who spend more than $8,333 a month, grew 17% to 504, and revenue from them rose 37% while representing 22% of total revenue. Average revenue per customer rose 14% over the prior-year quarter, and ARPU for the Scalers+ category rose 18%. Net dollar retention improved to 99% from 97% in the prior quarter, though it slipped to 98% for the full year from 101% in 2023 as the company lapped the 2022 price increases. Higher Spend Customers totaled roughly 165,000 at December 31, 2024, up from about 156,000 a year earlier, and produced 87% of 2024 revenue. Product velocity also picked up, with 49 new products and features shipped in the quarter and 125 across the year, including GPU Droplets and the GenAI Platform.
Guidance for the first quarter of 2025 points to an adjusted EBITDA margin of 38% to 40% and non-GAAP diluted net income per share of $0.41 to $0.46. For the full fiscal year 2025, management guides to an adjusted EBITDA margin of 37% to 40%, an adjusted free cash flow margin of 16% to 18% of revenue, and non-GAAP diluted net income per share of $1.85 to $1.95. A reconciliation of the non-GAAP outlook to GAAP figures is not available on a forward-looking basis.
The risk list is broad. DigitalOcean cites competition in a fast-changing market, the chance of security breaches that expose customer or company data, its ability to sustain profitability, and the uncertain payoff from AI/ML offerings and third-party AI tools. Macro conditions, including recently imposed or threatened U.S. tariffs and any retaliatory actions, could weigh on IT spending. The company also disclosed $88.8 million of estimated undiscounted fixed payments for co-location leases that had not commenced as of December 31, 2024 and carry a weighted average lease term of 6.2 years. It repurchased 716,718 shares during the quarter and returned $57 million to shareholders across 2024.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2024 | Q3 FY2024 | QoQ | Q4 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $204.9M | $198.5M | +3.2% | $180.9M | +13.3% |
| Gross profit | $117.1M | $119.4M | -2.0% | $106.5M | +10.0% |
| Gross margin | 57.1% | 60.2% | -3.0 pp | 58.9% | -1.7 pp |
| Research & development | $37.1M | $37.4M | -0.7% | $30.9M | +20.1% |
| Sales & marketing | $13.6M | $17.0M | -20.2% | $19.7M | -30.9% |
| General & administrative | $33.8M | $40.4M | -16.3% | $44.9M | -24.6% |
| Total operating expenses | $84.5M | $94.8M | -10.9% | $95.5M | -11.5% |
| Operating income (loss) | $32.5M | $24.6M | +32.2% | $11.0M | +196.2% |
| Operating margin | 15.9% | 12.4% | +3.5 pp | 6.1% | +9.8 pp |
| Net income (loss) | $18.3M | $32.9M | -44.6% | $15.9M | +14.6% |
| Net margin | 8.9% | 16.6% | -7.7 pp | 8.8% | +0.1 pp |
| Diluted EPS | $0.19 | $0.33 | -$0.14 | $0.17 | +$0.02 |
Risks
The filing states AI/ML offerings are expected to drive significant growth, but the AI/ML landscape is rapidly evolving and competitors such as Amazon, Microsoft, Google, Coreweave, and Lambda Labs may launch AI/ML offerings more quickly or successfully. MD&A also highlights new GPU Droplets, GenAI Platform, and a dedicated AI sales team, increasing execution risk.
DigitalOcean competes with large diversified cloud providers including Amazon AWS, Microsoft Azure, Google GCP, IBM Cloud, Alibaba Cloud, and Oracle Cloud, which have greater name recognition, larger budgets, and product bundling advantages. Smaller niche providers also compete on price and specific use cases.
Growth depends on Higher Spend Customers, including Builders, Scalers, and Scalers+, and sales to these customers involve longer sales cycles, complex requirements, substantial upfront costs, and less predictability. MD&A reports approximately 165,000 Higher Spend Customers as of December 31, 2024 and 87% of total 2024 revenue from these customers.
Net dollar retention rate decreased from 101% in 2023 to 98% in 2024 as the company lapped 2022 price increases. Most customer contracts do not require a specific commitment and permit termination or reduced usage without advance notice, which can cause results to fluctuate.
The company must accurately project data center capacity and related spending; underestimating requirements could limit new customer acquisition, while overestimating could create excess capacity and reduce operating margins. As of December 31, 2024, it had $88.8 million of estimated undiscounted fixed payment obligations for co-location leases not yet commenced.
MD&A cites unfavorable economic conditions including trade tensions, recent U.S. tariffs imposed or threatened, inflation, interest rates, and geopolitical conflicts that could decrease business investment in information technology and slow demand for cloud services.
Capital expenditures increased 49.3% for FY2024 year to date to $178.17 million, reflecting continued investment in AI/ML and infrastructure. Misjudging capacity needs or lease commitments could pressure margins and cash flow.
The filing notes that in 2024 the company hired a CEO, Chief Product and Technology Officer, Chief Ecosystem and Growth Officer, and Chief Revenue Officer, and risks include failing to integrate new executive leadership or retain key employees. Competition for cloud computing and AI/ML engineers is intense.
DigitalOcean relies on a limited number of suppliers for equipment components, including high-demand GPUs, and competes with larger cloud companies for those components. Disruptions could delay platform expansion or capacity increases.
The company may need to change its pricing model if competitors introduce lower-cost or differentiated products, and certain customers may demand substantial price concessions. MD&A attributes lower net dollar retention to lapping the 2022 price increases.
The company issued $1.5 billion aggregate principal amount of 0% convertible senior notes due 2026. Servicing this debt may require significant cash, and conditional conversion could require cash settlement or reclassification of principal as a current liability, adversely affecting liquidity and working capital.
The company uses AI/ML technology in internal operations and products, which is subject to increasing regulation and scrutiny. Compliance costs, regulatory investigations, and lawsuits could arise, and the filing notes that policies may not offer sufficient protection.
SaaS KPIs
All quarters →Adjusted EBITDA Margin
Adjusted EBITDA
Net Dollar Retention Rate
Average Revenue Per Customer (ARPU)
Annual Run-Rate Revenue (ARR)
Adjusted free cash flow
Adjusted free cash flow margin
Higher Spend Customers
Summary, forecast, risks and KPIs are extracted from DigitalOcean Holdings, Inc.'s SEC filings for Q4 FY2024 (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.