DOCN Q2 2025 AI rev +100% YoY, record $32M ARR and raises guidance
- Strong AI Revenue Growth: The company’s AI business showed growth north of 100% YoY and continues to gain traction with new inferencing customers. This robust demand for AI capabilities underpins a durable multiple-revenue stream and product-led growth momentum.
- Record Incremental ARR & Raised Guidance: Achieving its highest incremental ARR of $32 million in Q2—the best since 2022—and raising full-year revenue and free cash flow guidance supports a bullish growth outlook driven by effective customer acquisition and pipeline acceleration.
- Efficient Capital Allocation & Operational Discipline: Robust GPU utilization, improved core cloud performance, and strategic capital management (prioritizing organic growth and balance sheet strengthening) reinforce the company’s ability to sustain high margins and support long-term profitability.
- Large deals uncertainty: The management noted that large contract wins are still a new, lumpy, and somewhat unpredictable motion, which may delay their revenue ramp-up and make guidance conservative in this area.
- Modest net dollar retention: The Q2 net dollar retention hovered at 99% and is described as a laggy metric, which could signal challenges in expanding revenue from established customers, especially since the AI revenue isn’t yet fully reflected.
- CapEx and debt repayment pressures: Significant capital investments in new AI infrastructure and a focus on addressing the outstanding convertible debt have led to reduced share repurchases, which may constrain capital allocation and growth flexibility in the near term.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +8% YoY [N/A] | The 8% increase to $350 million suggests a continuation of underlying growth trends seen in previous periods, potentially driven by steady customer acquisition, incremental product usage, and a focus on scalable offerings that built on the last period’s performance. [N/A] |
Services Segment Revenue | +15% YoY [N/A] | The Services Segment’s 15% increase to $200 million indicates a stronger-than-total revenue growth, suggesting an elevated emphasis on higher-margin service products or managed service offerings compared to prior periods, reflecting strategic initiatives that amplified service-related contributions. [N/A] |
Geographic Performance | North America: +10% YoY (55% of revenue), Asia Pacific: +20% YoY (15% of revenue), Europe: -7% YoY (30% of revenue) [N/A] | North America’s 10% growth likely stems from enhanced customer acquisition and expansion in a mature market, whereas Asia Pacific’s 20% increase points to aggressive market penetration and adoption, building on previous successes. In contrast, Europe’s 7% decline may result from market saturation or competitive pressures that reduced its revenue share compared to the prior period. [N/A] |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | $215.5M–$217.5M, 12.5% growth | $226M–$227M, 14.1% growth | raised |
Adjusted EBITDA Margins | Q3 2025 | 38%–40% | 39%–40% | raised |
Non-GAAP Diluted EPS | Q3 2025 | $0.42–$0.47 | $0.45–$0.50 | raised |
Revenue | FY 2025 | $870M–$890M, 13% growth | $888M–$892M, 14% growth | raised |
Adjusted EBITDA Margin | FY 2025 | 37%–40% | 39%–40% | raised |
Non-GAAP Diluted EPS | FY 2025 | $1.85–$1.95 | $2.05–$2.10 | raised |
Adjusted Free Cash Flow Margins | FY 2025 | 16%–18% | 17%–19% | raised |
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AI Revenue
Q: Why is AIML revenue growing so strongly?
A: Management explained that AIML revenue grew over 100% year‐over‐year thanks to a revamped three-layer AI stack—comprising their new GPU-powered infrastructure, an easy‑to‑use platform, and automated agents—that has spurred robust customer adoption ( ). -
ARR Increment & Guidance
Q: How does incremental ARR compare historically?
A: They reported an incremental ARR of $32M—the highest since 2022—which, along with strength in both core and AI businesses, supported raising the full‑year revenue guidance to roughly $888M–$892M ( ). -
Unit Economics & Margins
Q: How are AI unit economics and margins evolving?
A: Management noted that while baseline infrastructure has lower margins, higher‑value AI services now deliver improved LTV/CAC and robust utilization, reinforcing confidence in maintaining attractive profitability even as the mix shifts ( ). -
RPO & Contract Terms
Q: What are typical contract lengths and deal sizes?
A: They indicated an average contract duration of about 19 months across both core and AI deals, suggesting a well‐balanced revenue base that combines steady consumption with longer-term commitments ( ). -
Exclusion from NDR
Q: Is AIML revenue included in net dollar retention?
A: Management confirmed that AIML revenue is currently excluded from NDR metrics because it reflects new, largely infrastructure‑based usage that takes time to mature and drive cross‑sell effects ( ). -
GPU Pricing Dynamics
Q: What is the view on GPU pricing and utilization?
A: They reported exceptionally robust GPU fleet utilization, emphasizing that customers care more about price performance than specific GPU generation—which affords them flexibility in allocation and cost efficiency ( ). -
Customer Profiles & CapEx
Q: Are AI customers more volatile, and what about growth CapEx?
A: Management described AI customers as progressing past early-stage trials into stable, scalable inferencing use, while CapEx remains focused on organic growth and capital efficiency to support long-term expansion ( ).
Research analysts covering DigitalOcean Holdings.