Summary
DigitalOcean closed FY2025 Q4 with revenue of $242.39 million, up 18.3% from the prior-year quarter. Gross profit rose 12.8% to $142.27 million, while operating income increased 19.2% to $38.80 million. Net income came in at $25.66 million, up 40.5%. The quarter's gross margin slipped 2.8 percentage points to 58.7%, but operating margin edged up 0.1 percentage points to 16.0%. For the full year, revenue reached $901.43 million, up 15.5%; operating income was $156.99 million, up 72.5%; net income was $259.26 million, up 206.8%; and diluted EPS was $2.52, up 183.1%. Cash generation was uneven. Fourth-quarter operating cash flow was $57.28 million, down 19.7%, and capital expenditures were $26.16 million, down 42.2%. Deferred revenue, current portion, was $5.88 million, up 9.0%.
The customer mix keeps shifting toward larger accounts. ARR ended the quarter at $970 million, up 18% year over year, and the company said it reached $1 billion in annualized monthly revenue in December 2025. It added a record $51 million in organic incremental ARR. Million-dollar-plus customer ARR was $133 million, up 123%, while AI customer ARR reached $120 million, up 150%. More than 70% of AI customer ARR comes from inference services and core cloud products rather than bare metal. Net dollar retention rate improved to 101% from 99% in the prior-year quarter. The number of $100K+ customers grew 26%, and revenue from those customers represented 28% of total revenue and grew 58%. The $500K+ and $1M+ customer groups grew 51% and 71%, with their revenue at 17% and 14% of total revenue and up 97% and 123%. Digital Native Enterprise customers stood at 21,361 at year-end, up from 18,468 a year earlier. Top 25 customers made up about 10% of revenue, so concentration remains modest.
Management raised its outlook after the quarter. For the first quarter ending March 31, 2026, it guides to adjusted EBITDA margin of 36% to 37%, non-GAAP diluted net income per share of $0.22 to $0.27, and fully diluted weighted average shares of approximately 111 to 112 million. For full-year 2026, the company expects adjusted EBITDA margin of 36% to 38%, adjusted free cash flow margin of 15% to 17% of revenue, unlevered adjusted free cash flow margin of 18% to 20% of revenue, and non-GAAP diluted net income per share of $0.75 to $1.00, with about 111 to 112 million fully diluted shares. It says it expects 21% growth in 2026, to exit 2026 at 25%+ growth, and to reach 30% growth in 2027, and that it is on track to be a weighted Rule of 50 company in 2027. The non-GAAP outlook excludes stock-based compensation and other items, and the release states a reconciliation is not available on a forward-looking basis without unreasonable effort.
The balance sheet carries real obligations. As of December 31, 2025, DigitalOcean had $1,317.3 million aggregate principal amount outstanding under its 2030 Convertible Notes, 2026 Convertible Notes, and Term Loan A. It reported $326.6 million of debt maturing within the next 12 months, made up of $312.3 million of 2026 Convertible Notes and $14.3 million of Term Loan A principal payments. After year-end, it borrowed an additional $120 million under the 2025 Credit Facility and received the proceeds in February 2026; as of February 24, 2026, no further borrowing capacity remains under its Term Loan Facility. In 2025, it repurchased $1,188 million in aggregate principal of its 2026 Convertible Notes at a $56 million discount to par. Fourth-quarter adjusted free cash flow was $27 million at an 11% margin, compared with $37 million at an 18% margin in the prior-year quarter. The quarter's operating cash flow decline and lower gross margin reflect heavier co-location costs, depreciation from data center expansions, and other infrastructure spending. The company lists risks including macroeconomic and trade policy uncertainty, competition, the success of AI/ML products, customer retention and expansion, capacity constraints, security breaches, cost control, and the integration of acquisitions. It also faces execution risk as it accelerates investments in data centers and GPU capacity.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2025 | Q3 FY2025 | QoQ | Q4 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $242.4M | $229.6M | +5.6% | $204.9M | +18.3% |
| Gross profit | $142.3M | $136.9M | +3.9% | $117.1M | +21.5% |
| Gross margin | 58.7% | 59.6% | -0.9 pp | 57.1% | +1.6 pp |
| Research & development | $44.3M | $38.1M | +16.1% | $37.1M | +19.3% |
| Sales & marketing | $22.5M | $21.2M | +6.1% | $13.6M | +65.6% |
| General & administrative | $36.7M | $32.7M | +12.4% | $33.8M | +8.5% |
| Total operating expenses | $103.5M | $92.0M | +12.5% | $84.5M | +22.4% |
| Operating income (loss) | $38.8M | $44.9M | -13.7% | $32.5M | +19.2% |
| Operating margin | 16.0% | 19.6% | -3.6 pp | 15.9% | +0.1 pp |
| Net income (loss) | $25.7M | $158.4M | -83.8% | $18.3M | +40.5% |
| Net margin | 10.6% | 69.0% | -58.4 pp | 8.9% | +1.7 pp |
| Diluted EPS | $0.24 | $1.51 | -$1.27 | $0.19 | +$0.05 |
Risks
In August 2025, DigitalOcean issued $625.0 million of 2030 Convertible Notes and drew $380.0 million on Term Loan A, using proceeds to repurchase $1,187.7 million principal of 2026 Convertible Notes. As of December 31, 2025, $1,317.3 million aggregate principal was outstanding and $326.6 million of debt matures within the next 12 months against $254.5 million of cash and cash equivalents. The conditional conversion feature could require cash settlement or cause a current-liability reclassification that materially reduces net working capital.
MD&A positions DigitalOcean as an agentic inference cloud and emphasizes Gradient AI Agentic Cloud and AI native DNE customers. The risk factor warns that if the company fails to timely offer the right AI/ML offerings or competitors launch more quickly, it may lose competitive position. Competitors include AWS, Microsoft Azure, Google Cloud, Coreweave and Lambda Labs.
Cost of revenue for 2025 increased partly due to $28.6 million in co-location costs from data center expansions. As of December 31, 2025, the company had $599.4 million of estimated undiscounted fixed payment obligations for co-location leases not yet commenced, with a weighted-average term of 9.6 years, exposing it to overcapacity costs and margin pressure if capacity needs are misjudged.
MD&A says growing DNE Customers is a critical focus; DNE count rose to 21,361 as of December 31, 2025 from 18,468 as of December 31, 2024, and DNE revenue was 60% of total revenue in 2025. The risk factor states sales to DNE Customers involve longer sales cycles, complex requirements, substantial upfront sales costs and less predictability in completing sales.
MD&A cites trade tension, tariffs, supply chain disruptions, inflationary pressures, high interest rates and geopolitical tensions as factors that could decrease business investment in information technology and negatively affect growth. The implications of these conditions remain uncertain.
The risk factor says the company may need to change its pricing model, certain customers may demand substantial price concessions, and future price reductions could adversely affect revenue, gross margin, profitability and cash flow. Gross margin was 58.7% in FY2025 Q4, down 2.8 pp from 61.5% in FY2024 Q4, though FY2025 YTD gross margin was 59.9%, up 0.2 pp from FY2024 YTD.
MD&A and risk factors highlight recent leadership changes, including CEO, Chief Ecosystem and Growth Officer and Chief Revenue Officer hired in 2024 and a new Chief Product and Technology Officer in 2026. Failure to integrate new executives or retain key cloud and AI/ML engineers could disrupt strategy and growth.
The risk factor states use of AI/ML technology is subject to privacy and data security laws and increasing regulation and scrutiny; new AI laws could add compliance costs, investigations and lawsuits. Misuse by employees, contractors or business partners could violate confidentiality obligations or privacy laws.
Summary, forecast, risks and KPIs are extracted from DigitalOcean Holdings, Inc.'s SEC filings for Q4 FY2025 (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.