DigitalOcean is finally making its long-awaited IPO, so here’s everything investors need to know.
Wall Street may have made New York City the center for banking and investing, but the city’s tech scene is also having a moment. Following in the footsteps of Etsy (NASDAQ: ETSY), MongoDB, Datadog (NASDAQ: DDOG), and Peloton (NASDAQ: PTON) — DigitalOcean is another New York-based tech company that is lining up to make its market debut this year.
DigitalOcean is a provider of data center and cloud technology that provides developers services that help them to deploy and scale applications that run simultaneously on multiple computers. The company is a self-service business, meaning it does not require many salespeople, similar to that of e-commerce software maker Shopify (NYSE: SHOP).
When can I buy DigitalOcean stock?
DigitalOcean will go public via IPO on the NYSE on Wednesday, March 24, 2021.
What is DigitalOcean’s IPO Price?
DigitalOcean is expected to go public at between $44 – $47 per share under the ticker symbol, DOCN.
DigitalOcean’s Financials
DigitalOcean hit $318 million in revenue in 2020 and currently has around 600,000 customers. However, the company also held huge layoffs last year as well as a $100 million debt raise. The company was last valued at $1.15 billion in a 2020 funding round and after its market debut, it expects to have a market cap of about $5 billion.
Unlike its cloud service provider rival, Amazon Web Services (NASDAQ: AMZN), DigitalOcean is not yet profitable. The cloud infrastructure provider lost around $44 million in 2020, up from its $40 million loss in 2019. In addition, the company is also growing at a much slower pace than AWS. To compare, Amazon’s cloud service revenue totaled $45.37 billion in 2020, up 29.5%, while DigitalOcean only reported 25% revenue growth.
The trick DigitalOcean has up its sleeve? Simplicity. The company boasts that the technology is easy to function for new users and stated that they also wind up increasing the amount they spend on DigitalOcean services over time. CEO Yancey Spruill explained:
“We take infrastructure technology and make it simple across all aspects of the product experience.”
In the company’s prospectus, DigitalOcean said it expects more than 14 million small and medium-sized businesses to be formed each year, each of which will require their services.
Growth Potential
The simplicity of DigitalOcean’s products might also be its downfall. The company has just a handful of products, including customizable Linux-based virtual machines called droplets, data-storage options, networking tools, and three databases. However, Amazon has machine-learning services, deployment tools, database-migration technologies, and media-transcoding systems.
DigitalOcean is really trying to target sole developers and small businesses. It even critiqued bigger cloud vendors by saying their products aren’t intuitive enough and “suffer from near-infinite feature complexity and have opaque pricing and billing practices that are often accompanied by significant hidden costs.” Rather than trying to go after the entire pie, DigitalOcean is going for the sweet spot by making its products simple for small businesses to use instead of going after large enterprises that the big cloud providers have been fighting for.
The company also has the potential for market expansion. In its prospectus, DigitalOcean showcased clients like Bunnyshell of Romania, Jiji of Nigeria, and Whatfix of India. This global reach is great for the business. In 2020, only 38% of DigitalOcean’s revenue came from North America.
The thorn in DigitalOcean’s side is the worry that its clients might move on to more sophisticated, comprehensive cloud providers once their needs evolve past the basics. The company’s expansion has been impressive and if investors can look past its losses and layoffs to focus on its revenue growth — DigitalOcean’s IPO should be another huge tech market debut.
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