DigitalOcean Goes Public With A Strong ISV PaaS Strategy

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According to an IDC report, the global IaaS and PaaS market for individuals and organizations with less than 500 employees is expected to grow at 27% CAGR from $44.4 billion in 2020 to reach $115.5 billion by 2024. New York-based DigitalOcean (NYSE: DOCN) is a leading player in the segment that went public last week.

DigitalOcean’s Offerings

DigitalOcean was founded in 2012 by Alec Hartman, Ben Uretsky, Jeff Carr, Mitch Wainer, and Moisey Urtesky based on a realization that the cloud was the new way to build modern-day web applications. The founders believed that software developers, entrepreneurs, and SMBs needed better solutions from cloud computing providers to leverage the opportunities provided by innovative cloud infrastructure technologies. DigitalOcean grew to offer infrastructure and PaaS solutions to these organizations and teams without requiring them to have DevOps experience.

To make development easier for developers, DigitalOcean provides on-demand infrastructure and platform tools for developers, startups, and SMBs that are easy to use and access while being reliable and affordable. It provides a range of capabilities to access compute, network, and storage infrastructure as well as software-managed services that provide additional capabilities for managing more robust infrastructure needs.

Today, DigitalOcean caters to more than 570,000 customers in over 185 countries. It has built a developer learning community with over 34,000 developer tutorials, technical guides, and community-generated Q&As. The company has over 5 million developers on its platform, which includes over 30,000 ISVs.

DigitalOcean provides similar services that giants like Amazon and Microsoft provide but focuses primarily on smaller-sized customers and individual developers. It has built up a business by keeping its products easy to use. Unlike Amazon and Microsoft, DigitalOcean does not have a slew of product offerings. It has a few products, including the customizable Linux-based virtual machines that it calls droplets, data-storage options, networking tools, and three databases. It is looking to add analytics software and add data center infrastructure in more places around the world in the coming quarters.

DigitalOcean’s Financials

DigitalOcean earns revenues by charging its customers a monthly fee based on the usage of its services. The growth of cloud computing and developer action globally has resulted in a significant growth of DigitalOcean’s financials as well. Revenues have grown from $203.1 million for fiscal 2018 to $254.8 million in fiscal 2019 to $318.4 million for fiscal 2020. DigitalOcean is still not profitable and reported a loss of $36 million in fiscal 2018, $40.4 million in fiscal 2019 and $43.6 million for fiscal 2020.

DigitalOcean went public last week. Prior to going public, it had raised $455.6 million in 13 rounds of funding, with the most recent round being held in May last year. Its investors include Andreessen Horowitz, Access Industries, EquityZen, Kliwla Family Office AG, Viaduct Ventures, Mighty Capital, Opus Bank, Barclays Investment Bank, East West Bank, and HSBC Bank.

It raised $775.5 million from its IPO where it sold its stock at $47 apiece. It is currently trading at $43.80 with a market capitalization of $4.61 billion.

I believe that DigitalOcean is a formidable player in the space. It boasts of an impressive PaaS strategy as is reflected in the size of its developer community. By keeping it simple, DigitalOcean has successfully built a PaaS ecosystem that will sustain growth for both itself and its developers.

It is early days, but the stock hasn’t had a promising start so far as the timing of the IPO coincides with significant market turbulence in cloud stocks.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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Photo credit: DigitalOcean/Flickr.com