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DigitalOcean Holdings, Inc. (DOCN)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered solid top-line and profitability with revenue $218.7M (+14% YoY) and adjusted EBITDA $89.5M (41% margin); non-GAAP diluted EPS was $0.59 .
  • Guidance raised across the board: FY 2025 revenue to $888–$892M, adjusted EBITDA margin to 39–40%, adjusted FCF margin to 17–19%, and non-GAAP EPS to $2.05–$2.10 .
  • AI momentum accelerated: AI/ML revenue more than doubled YoY; incremental ARR reached $32M, the highest since Q4 2022; Scalers+ revenue grew 35% YoY to 24% of total .
  • Consensus beats: revenue ($218.7M vs $216.6M*), non-GAAP EPS ($0.59 vs $0.468*), and EBITDA ($89.5M vs $85.2M*) — sustained estimate outperformance from Q4 2024 to Q2 2025. Values retrieved from S&P Global.*

What Went Well and What Went Wrong

  • What Went Well
    • “We delivered another quarter of solid performance across both AI and core cloud… we more than doubled our AI/ML revenue year-over-year.” — CEO Paddy Srinivasan .
    • Strong customer mix shift: Scalers+ revenue +35% YoY to 24% of total; count +23% YoY; ARPU $111.70 (+12% YoY) and NDR improved to 99% .
    • Profitability and cash flow: adjusted EBITDA $89.5M (41% margin); adjusted FCF $57.0M (26% margin); CFO reaffirmed confidence in maintaining attractive FCF while accelerating growth .
  • What Went Wrong
    • Gross margin dipped to 60% (vs 61% in Q1 and 62% in Q4) amid capacity investments; management expects margins to remain around current levels near term .
    • Net Dollar Retention held at 99% (down from 100% in Q1); management highlighted mixed expansion behavior among larger long-tail customers and lag in AI contribution to NDR .
    • Capacity constraints remain a “way of life” in AI; while manageable, scaling requires ongoing investment in GPUs, power, and cooling .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$204.925 $210.703 $218.700
GAAP Diluted EPS ($)$0.19 $0.39 $0.39
Non-GAAP Diluted EPS ($)$0.49 $0.56 $0.59
Gross Margin (%)62% 61% 60%
Adjusted EBITDA ($USD Millions)$85.870 $86.284 $89.465
Adjusted EBITDA Margin (%)42% 41% 41%
Adjusted Free Cash Flow ($USD Millions)$36.710 $(0.821) $57.015
Net Income ($USD Millions)$18.266 $38.204 $37.027

Results vs S&P Global Consensus (beats/misses)

MetricQ4 2024 ConsensusQ4 2024 ActualQ1 2025 ConsensusQ1 2025 ActualQ2 2025 ConsensusQ2 2025 Actual
Revenue ($USD Millions)$200.542*$204.925 $208.626*$210.703 $216.623*$218.700
Non-GAAP EPS ($)$0.341*$0.49 $0.443*$0.56 $0.468*$0.59
EBITDA ($USD Millions)$72.556*$85.870 $81.484*$86.284 $85.167*$89.465

Values retrieved from S&P Global.*

Key KPIs

KPIQ4 2024Q1 2025Q2 2025
ARR ($USD Millions)$820 $843 $875
Incremental ARR ($USD Millions)—$23 $32
NDR (%)99 100 99
ARPU ($)$105.75 $108.56 $111.70
Scalers+ Share of Revenue (%)22 23 24
RPO ($USD Millions)——$53
Cash & Equivalents ($USD Millions)$428 $360 $388

YoY Comparisons (Q2 2025 vs Q2 2024)

MetricQ2 2024Q2 2025YoY Change
Revenue ($USD Millions)$192.476 $218.700 +13.6%
Net Income ($USD Millions)$19.138 $37.027 +93.5%
Adjusted EBITDA ($USD Millions)$81.586 $89.465 +9.7%
NDR (%)97 99 +200 bps
ARPU ($)—$111.70 n/a

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD Millions)FY 2025$870–$890 $888–$892 Raised
Adjusted EBITDA Margin (%)FY 202537–40 39–40 Raised (upper/lower bound)
Adjusted Free Cash Flow Margin (%)FY 202516–18 17–19 Raised
Non-GAAP Diluted EPS ($)FY 2025$1.85–$1.95 $2.05–$2.10 Raised
Fully Diluted Weighted Avg Shares (M)FY 2025104–105 103–104 Lowered
Total Revenue ($USD Millions)Q3 2025—$226–$227 Initiated
Adjusted EBITDA Margin (%)Q3 2025—39–40 Initiated
Non-GAAP Diluted EPS ($)Q3 2025—$0.45–$0.50 Initiated
Fully Diluted Weighted Avg Shares (M)Q3 2025—~102–103 Initiated

Earnings Call Themes & Trends

TopicQ4 2024Q1 2025Q2 2025Trend
AI/Technology InitiativesGA of GenAI Platform; GPU droplets incl. H100; Net new features ramp Atlanta data center brought online for AI inferencing; HGX H200, MI300X; GA timing for GenAI platform; >160% AI ARR growth AI/ML revenue >100% YoY; Gradient AI agents/platform GA; AMD Instinct collaboration; inference-optimized GPU droplets Strengthening
Customer Mix & Scalers+Scalers+ 22% of revenue; count 504 (+17% YoY) Scalers+ revenue +41% YoY; 23% of revenue Scalers+ revenue +35% YoY; 24% of revenue; count +23% YoY Positive mix shift
NDR & Cohort BehaviorNDR 99% NDR 100% with improved expansion NDR 99%; AI not yet in NDR; mixed expansion across larger long-tail customers Stable-to-mixed
Migrations & Go-to-MarketExpanded named account coverage; product-led growth 79 migrations; expanded top-3,000 named accounts; partner-led funnels 76 migrations; continued PLG improvements; direct sales & partnerships for AI Building
Profitability & Cash FlowAdj EBITDA margin 42%; adj FCF margin 18% Adj EBITDA margin 41%; adj FCF breakeven due to front-loaded capex Adj EBITDA margin 41%; adj FCF margin 26% on timing; confidence in full-year FCF Improving
Financing & Capital AllocationCash $428M; buybacks; 2026 converts outstanding $800M credit facility to refinance 2026 converts; buybacks Active evaluation of financing alternatives; intent to address 2026 convert by year-end De-risking

Management Commentary

  • “We delivered another quarter of solid performance across both AI and core cloud… and we more than doubled our AI/ML revenue year-over-year.” — CEO Paddy Srinivasan .
  • “Incremental ARR of $32M was the highest… since 2022 and the highest organic incremental ARR in over three years.” — CFO Matt Steinfort .
  • “We remain committed to fully addressing the 2026 convert over the balance of this calendar year… with multiple attractive financing options.” — CFO Matt Steinfort .
  • “Capacity constraints are a way of life in AI… but our twin stack cloud differentiates DO for full-stack AI applications beyond GPUs.” — CEO Paddy Srinivasan .
  • “Gross margins expected to remain around current levels this year; AI mix is growing but still a small portion.” — CFO Matt Steinfort .

Q&A Highlights

  • AI revenue and ARR: AI/ML revenue grew >100% YoY; AI ARR growth decelerated from >160% YoY in prior quarters due to tough comps, but incremental ARR is accelerating; majority of AI revenue currently from infrastructure/inferencing .
  • NDR dynamics: NDR at 99% with mixed customer expansion; AI inferencing not yet included in NDR, expected to contribute later as cohorts mature beyond 12 months .
  • Large deals & guidance: Pipeline includes multi-year committed AI and core cloud deals; lumpy ramps; guidance remains conservative until visibility improves .
  • Capacity/pricing/utilization: GPU fleet utilization is robust; customers prioritize price-performance; DO’s inference-optimized droplets and model/infrastructure optimizations improve economics .
  • Gross margins trajectory: Expect consistent margins near current levels in 2H25; modest headwind if AI becomes significantly larger share; ongoing bandwidth/data center optimization .

Estimates Context

  • DOCN beat S&P Global consensus for revenue, non-GAAP EPS, and EBITDA in Q4 2024, Q1 2025, and Q2 2025:
    • Q2 2025: Revenue $218.7M vs $216.6M*; Non-GAAP EPS $0.59 vs $0.468*; EBITDA $89.5M vs $85.2M*. Values retrieved from S&P Global.*
    • Sustained estimate outperformance reflects stronger PLG cohorts, Scalers+ expansion, and AI inferencing demand .
  • FY 2025 consensus EPS ~$2.05* aligns with raised company EPS guidance $2.05–$2.10 . Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Raised FY 2025 guidance across revenue, margins, FCF, and EPS signals confidence in 2H growth drivers; this is a clear positive catalyst .
  • AI inferencing momentum and Gradient AI platform GA underpin durable demand; expect continued pull-through of core cloud services and Scalers+ mix improvement .
  • Record incremental ARR ($32M) and rising ARPU/NDR stability indicate strengthening cohorts and monetization, supporting multi-quarter estimate revisions .
  • Profitability intact: adj EBITDA margin maintained at 41% and adj FCF margin rebounded to 26% on timing; management targets 17–19% FCF margin for FY 2025 .
  • Capital structure de-risking: management planning to address 2026 converts by year-end; subsequent events include proposed/priced/closed convertible notes offering (Aug 11–18) .
  • Near-term watch items: NDR modestly below 100%; gross margins around 60% amid capacity investments; AI contributions to NDR lag due to cohort timing .
  • Trading setup: consensus beats and raised guide create positive estimate momentum; monitor execution on large AI deals, migration pipeline, and capacity deployment pace .

Additional Primary Sources Reviewed

  • Q2 2025 8-K Item 2.02 and press release with full financials and guidance .
  • Q2 2025 earnings call transcript (prepared remarks and Q&A) –.
  • Q1 2025 8-K and earnings call (for prior quarter trend analysis) – –.
  • Q4 2024 8-K (for trend analysis) –.
  • Product/Platform press releases: Identity/RBAC (Jun 30) , GradientAI GA (Jul 9) , Cloudways Copilot GA (Aug 12) .

Values retrieved from S&P Global.*