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DigitalOcean Holdings, Inc. (DOCN)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was a clean beat: revenue $210.7M (+14% YoY) vs S&P Global consensus ~$208.6M; non‑GAAP diluted EPS $0.56 vs consensus ~$0.44. Gross margin 61% and adjusted EBITDA margin 41% remained healthy, supported by cost optimization and extended server useful lives . Values retrieved from S&P Global.*
  • AI momentum continued: AI ARR grew north of 160% YoY; GenAI Platform reached 5,000 customers and 8,000 agents. Net dollar retention (NDR) improved to 100% (first time since Q2’23), driven by higher-spend cohorts and product innovation .
  • Guidance maintained: Q2 revenue $215.5–$217.5M; FY25 revenue $870–$890M; FY25 adjusted FCF margin 16–18%—all unchanged from prior guide. Q2 adjusted EBITDA margin 38–40% and non‑GAAP EPS $0.42–$0.47 reiterated .
  • Financing catalyst: the company entered a new 5‑year $800M secured facility ($500M delayed-draw term loan + $300M revolver) to begin addressing the 2026 convert, providing balance sheet flexibility and potential growth capacity scaling .

What Went Well and What Went Wrong

What Went Well

  • AI scaling and product cadence: “AI ARR continuing to grow north of 160% year‑over‑year, and we delivered more than 50 new product features, over 5 times as many as we delivered in Q1 of last year.” — CEO Paddy Srinivasan .
  • Higher-spend customer traction: Revenue from $100K+ ARR customers grew 41% YoY and reached 23% of total revenue; NDR improved to 100% .
  • Profitability discipline: Gross margin 61% (+200 bps YoY) and adjusted EBITDA margin 41% (+~100 bps YoY), aided by cost optimization and extending server life to 6 years .

What Went Wrong

  • Free cash flow dip: Adjusted FCF was negative ~$0.8M vs +$34.3M in Q1’24, driven by front‑loaded growth capex and Atlanta data center ramp .
  • Gross margin down sequentially: 61% in Q1 vs 62% in Q4 due to near‑term cost impact from new capacity; management expects normalization as utilization ramps .
  • Macro caution pockets: Management noted cautiousness in certain verticals (e.g., ad tech) and is projecting with appropriate caution despite broader improvement in customer expansion trends .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$198.5 $204.9 $210.7
GAAP Diluted EPS ($)$0.33 $0.19 $0.39
Non-GAAP Diluted EPS ($)$0.52 $0.49 $0.56
Gross Margin (%)60% 62% 61%
Adjusted EBITDA ($USD Millions)$86.7 $85.9 $86.3
Adjusted EBITDA Margin (%)44% 42% 41%
Net Income Margin (%)17% 9% 18%
KPI (Q1 2025 unless noted)Value
ARR ($USD Millions)$843
Net Dollar Retention (NDR)100%
ARPU ($)$108.56
Scalers+ Revenue Share23% of total
GenAI Platform Users5,000 customers; 8,000 agents
Share Repurchases1.6M shares in Q1; cumulative $1.6B / 34.1M shares since IPO
Cash & Cash Equivalents$360.4M

Guidance Changes

MetricPeriodPrevious Guidance (Feb 25, 2025)Current Guidance (May 6, 2025)Change
Revenue ($USD Millions)Q2 2025$215.5–$217.5 $215.5–$217.5 Maintained
Adjusted EBITDA Margin (%)Q2 202538–40 38–40 Maintained
Non-GAAP Diluted EPS ($)Q2 2025$0.42–$0.47 $0.42–$0.47 Maintained
Diluted Shares (M)Q2 2025~103–104 ~103–104 Maintained
Revenue ($USD Millions)FY 2025$870–$890 $870–$890 Maintained
Adjusted EBITDA Margin (%)FY 202537–40 37–40 Maintained
Adjusted FCF Margin (%)FY 202516–18 16–18 Maintained
Non-GAAP Diluted EPS ($)FY 2025$1.85–$1.95 $1.85–$1.95 Maintained
Diluted Shares (M)FY 2025~104–105 ~104–105 Maintained

Earnings Call Themes & Trends

TopicQ3 2024 (prev‑2)Q4 2024 (prev‑1)Q1 2025 (current)Trend
AI initiatives & inferencing focusGPU droplets GA; GenAI early; NDR stable at 97% GenAI in public beta; 1,000+ agents; AI ARR >160%; ramping GPU capacity AI ARR >160%; GenAI at 5,000 customers/8,000 agents; inferencing workloads dominate; NVIDIA H200 and AMD MI300X access Strengthening
Product innovation for enterprise42 releases; global load balancers; VPC peering 49 releases; internal LB; droplet autoscale; per‑bucket keys; migrations program >50 releases; Partner Network Connect; DOKS to 1,000 nodes; network load balancing Accelerating
Go‑to‑market evolutionFocus on higher-spend customers Named coverage to top 1,500 accounts; migrations program Named coverage doubled to top 3,000; Propensity-based engagement of ~5,000 lookalikes Scaling breadth
Financing strategy—Plan to address 2026 convert; Atlanta DC coming online New $800M secured facility; exploring leasing to accelerate growth while preserving FCF Proactive de‑risking
Macro commentaryNDR stable; growth from acquisition Baseline growth foundation; front-loaded capex in Q1 Cautious outlook with pockets of ad tech softness; confident in guide Neutral-to-cautious

Management Commentary

  • “We grew total revenue 14% year‑over‑year… with AI ARR continuing to grow north of 160% year‑over‑year, and we delivered more than 50 new product features.” — CEO Paddy Srinivasan .
  • “Revenue from $100K+ ARR customers up 41% year over year and to 23% of total revenue… NDR increased to 100%.” — CEO .
  • “Our 2025 capital program was heavily front loaded in Q1… enabling us to win even larger inferencing workloads like the $20 million+ multiyear inferencing commitment.” — CEO .
  • “Maintenance capital is generally ~5% of revenue… growth capital typically ~15% of revenue, with core cloud paybacks <2 years and AI growth capital ~3 years.” — CFO Matt Steinfort .
  • “We are exploring leasing arrangements… to accelerate growth beyond our current outlook while maintaining or improving strong cash flow generation.” — CFO .

Q&A Highlights

  • GenAI GA timeline: management expects GenAI to reach general availability by end of Q2/beginning of Q3 as features are finalized .
  • Capacity and capex: Q1 capex front‑loaded for Atlanta; capacity underpins 2025 ARR/revenue outlook; leasing considered to pursue larger, lumpier deals without FCF compromise .
  • Macro tone: cautious approach embedded in guide; some vertical softness (ad tech) but diversified base and daily usage visibility support confidence .
  • Named account expansion: targeting top 3,000 spenders now (up from 1,500 in 2024) with TAM, solution architects, growth AMs; ~5,000 propensity‑based accounts in engagement model .
  • Supply/GPUs & leasing market: no material GPU supply constraints; multiple OEM sources; strong interest from capital partners for AI/cloud infrastructure leasing .

Estimates Context

MetricS&P Global ConsensusActualSurprise
Revenue ($USD Millions, Q1 2025)$208.6*$210.7 +$2.1; +1.0%
Primary EPS (non-GAAP, $/share, Q1 2025)$0.44*$0.56 +$0.12; +27%
  • Q2 2025 guidance vs consensus: revenue guide $215.5–$217.5M vs consensus ~$216.6M*; non‑GAAP EPS guide $0.42–$0.47 vs consensus ~$0.47* — in line to modestly conservative on EPS midpoint. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Clear beat on both revenue and non‑GAAP EPS versus consensus; profitability metrics held at attractive levels despite capex ramp — a positive near‑term catalyst. Values retrieved from S&P Global.*
  • AI inferencing traction is real and scaling (160%+ AI ARR growth), with enterprise‑grade features and GPUs (NVIDIA H200; AMD MI300X) driving larger commitments (e.g., $20M+ multiyear deal) .
  • NDR inflected to 100%, reducing prior headwinds; higher‑spend cohorts now 23% of revenue, suggesting ongoing wallet share opportunity from migrations and GTM focus .
  • Front‑loaded Q1 capex depressed adjusted FCF, but FY25 16–18% FCF margin is reiterated; monitor utilization ramp at Atlanta and margins normalization through Q2–Q4 .
  • Balance sheet de‑risking via $800M facility to address 2026 convert and potential leasing strategy can enable faster capacity deployment without sacrificing FCF—supports medium‑term growth optionality .
  • Product roadmap is accelerating (Partner Network Connect, DOKS 1,000 nodes, internal/load balancers, per‑bucket keys), positioning DO well for digital native enterprise workloads and multi‑cloud integrations .
  • Watch items: sequential gross margin trajectory as capacity ramps; AI revenue mix (infrastructure vs platform pull‑through); continued NDR stability and scalability of named account model .

Disclaimer: Values retrieved from S&P Global.*