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DigitalOcean Holdings, Inc. (DOCN)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid top-line growth and margin resilience: revenue $205.0M (+13% YoY), gross margin 62%, adjusted EBITDA $85.9M (42% margin), and non-GAAP diluted EPS $0.49 .
  • Net Dollar Retention improved to 99% (vs 97% in Q3), with Scalers+ customers (>$8,333/month) reaching 504 and contributing 22% of revenue; Scalers+ revenue grew 37% YoY, evidencing traction with higher-spend cohorts .
  • Management guided Q1 2025 revenue to $207–$209M and FY2025 to $870–$890M, with adjusted EBITDA margin 37–40% and adjusted FCF margin 16–18%, signaling continued balanced growth and investment cadence (front-loaded capex for Atlanta data center and AI) .
  • Catalyst: The quarter showed accelerating adoption across AI and higher-spend customers, a clear beat versus Q4 guidance ranges from Q3 (revenue, margins, and EPS), and improving NDR, which may drive estimate revisions and sentiment into FY2025 .

What Went Well and What Went Wrong

  • What Went Well

    • Higher-spend customer strategy showed measurable progress: Scalers+ count grew 17% YoY to 504, contributed 22% of revenue, and Scalers+ revenue rose 37% YoY .
    • NDR improved to 99% (traditional cloud NDR reached 100% in Q4 for the first time since June 2023), supported by product roadmap execution and focused go-to-market motions with top customers .
    • AI momentum: GenAI Platform beta saw 1,000+ agents created in 4 weeks (≈90% by existing customers), and GPU droplets rapidly consumed capacity, validating AI platform and infrastructure strategies .

  • What Went Wrong

    • Operating cash flow declined sequentially: Q4 GAAP cash from operations $71.3M vs $73.4M in Q3; adjusted FCF $36.7M vs $26.2M in Q3 but still below some prior periods, reflecting timing and investment needs .
    • Near-term margin cadence: management flagged a likely early-year gross margin dip due to the Atlanta data center ramp and front-loaded expenditures, before improvement later in 2025 .
    • Estimates context unavailable: S&P Global consensus retrieval failed; while results beat prior company guidance, direct comparison to Street estimates is not available at this time (note in Estimates Context) .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$192.476 $198.484 $204.925
GAAP Diluted EPS ($USD)$0.20 $0.33 $0.19
Non-GAAP Diluted EPS ($USD)$0.48 $0.52 $0.49
Gross Margin %61% 60% 62%
Adjusted EBITDA ($USD Millions)$81.586 $86.720 $85.870
Adjusted EBITDA Margin %42% 44% 42%
Adjusted Free Cash Flow ($USD Millions)$37.429 $26.230 $36.710
KPIQ2 2024Q3 2024Q4 2024
Net Dollar Retention (NDR)97% 97% 99%
ARPU ($USD)$99.45 $102.51 $105.75
ARR ($USD Millions; methodology per quarter)$781 $798 $820
Scalers+ Count——504
Scalers+ Revenue Share of Total——22%

Notes: Q4 GAAP net income was $18.3M (9% margin) ; adjusted EBITDA margin 42% ; cash and equivalents at quarter-end $428.4M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Revenue ($USD Millions)Q4 2024$199–$201 $204.925 Outperformed
Adjusted EBITDA Margin %Q4 202434%–38% 42% Outperformed
Non-GAAP Diluted EPS ($)Q4 2024$0.27–$0.32 $0.49 Outperformed
Revenue ($USD Millions)FY 2024$775–$777 $780.615 Outperformed
Adjusted EBITDA Margin %FY 202440%–41% 42% Outperformed
Non-GAAP Diluted EPS ($)FY 2024$1.70–$1.75 $1.92 Outperformed
Revenue ($USD Millions)Q1 2025—$207–$209 New
Adjusted EBITDA Margin %Q1 2025—38%–40% New
Non-GAAP Diluted EPS ($)Q1 2025—$0.41–$0.46 New
Revenue ($USD Millions)FY 2025—$870–$890 New
Adjusted EBITDA Margin %FY 2025—37%–40% New
Adjusted FCF Margin %FY 2025—16%–18% New
Non-GAAP Diluted EPS ($)FY 2025—$1.85–$1.95 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
AI/technology initiativesGPU droplets EA (H100); AI/ML ARR up >200% YoY (Q2) ; GenAI early availability & GPU droplets available to all customers (Q3) GenAI Platform public beta: 1,000+ agents in 4 weeks (~90% from existing customers); ramping GPU capacity; strong AI ARR growth north of 160% in Q4 Accelerating
Product performance for larger customers24–42 features released; ARPU growth; NDR 97% (Q2/Q3) 49 features released in Q4; removal of customer “blockers”; adoption across top customers Improving
Net Dollar Retention (NDR)Stable at 97% (Q2/Q3) NDR 99%; traditional cloud NDR hit 100% in Q4 for first time since June 2023 Improving
Cohort strategy (Scalers/Scalers+)Builders/Scalers growth; focus on SMBs (Q2/Q3) Scalers+ disclosed: 504 count, 22% revenue share; 37% YoY revenue growth; 17% YoY count growth Focus sharpened
Go-to-market motionsPLG and community focus (Q2/Q3) Engagement with top 1,500 customers; migration program from hyperscalers (introduced at Deploy) Expanding
Data center optimizationNot highlighted (Q2/Q3) —Atlanta data center online in Q1; front-loaded investments, short-term GM dip then recovery Execution phase
ARR methodologyARR as last month ×12 (Q2/Q3) ARR now quarterly revenue ×4 to reduce volatility; reconciliation in 10-K Methodology updated
Macro/SMB backdropNot detailed —Macro modeled as stable; not embedded as tailwind in guidance Neutral

Management Commentary

  • “We are entering 2025 with increasing momentum... increased net dollar retention to 99%, grew revenue 13% year-over-year and delivered 18% adjusted free cash flow margin.” — CEO Paddy Srinivasan .
  • “Revenue from Scalers+ who represent 22% of overall revenue, grew 37% year-over-year... NDR rate of our traditional cloud services reached 100% in Q4 for the first time since June of 2023.” — CFO Matt Steinfort .
  • “Our Gen AI platform... in 4 weeks... well over 1,000 agents created... roughly 90% created by existing DO customers.” — CEO Paddy Srinivasan .
  • “We... are increasing our allocation of our GPU capacity for our GPU droplets, where we quickly ran out of capacity after launching at the beginning of Q4.” — CEO Paddy Srinivasan .
  • “Our upcoming Atlanta data center... provides incremental capacity for both AI and core cloud offerings and is part of our longer-term data center optimization strategy.” — CEO Paddy Srinivasan .

Q&A Highlights

  • Migration from hyperscalers: Customers seek simpler operations and better TCO; DO’s migration program leverages partners and approachable cloud to onboard globally distributed, bandwidth-intensive workloads .
  • EBITDA guidance philosophy: Wide ranges reflect dynamic investment pacing; focus is on raising and delivering free cash flow margin (16–18% in FY2025) rather than quarter-to-quarter EBITDA precision .
  • AI economics: Higher-layer GenAI services carry better margins and drive substantial pull-through to storage, bandwidth, and databases; core GPU as a service remains competitive and price-transparent, but mix should improve over time .
  • Gross margin cadence: Expect a modest GM dip early in 2025 with Atlanta ramp, then recovery; multi-year GM improvement targeted via optimization and better infrastructure utilization .
  • ARR methodology: Shift to quarterly revenue ×4 reduces volatility in a consumption-driven business with project-based AI workloads; older method would have been higher in Q4, but new approach is more steady .

Estimates Context

  • S&P Global consensus estimates were unavailable at this time due to a retrieval limit (Daily Request Limit exceeded). We attempted to fetch quarterly and annual consensus for revenue and EPS, but data could not be returned [GetEstimates].
  • Implication: While direct Street comparisons are unavailable, results materially exceeded company-issued Q4 guidance for revenue, margins, and non-GAAP EPS, and FY2025 guidance indicates ~13% growth at the midpoint with sustained margin discipline .
  • If/when consensus becomes available, we expect analysts to benchmark Q4 beats and incorporate FY2025 guidance ranges into models. Values would be retrieved from S&P Global.

Key Takeaways for Investors

  • Cohort-driven growth is working: Scalers+ expanded to 504 customers, 22% revenue share, and 37% YoY revenue growth, validating DO’s focus on higher-spend customers .
  • Momentum in NDR reduces a prior growth headwind: NDR improved to 99% (traditional cloud NDR hit 100%), supporting multi-quarter expansion potential .
  • AI strategy is gaining traction: GenAI Platform adoption and GPU droplets demand support durable AI revenue and higher-margin pull-through across core cloud services .
  • Execution on product velocity: 49 Q4 product/feature releases removed key blockers for larger customers, improving adoption and expansion .
  • Attractive FY2025 setup: Revenue $870–$890M, adjusted EBITDA margin 37–40%, adjusted FCF margin 16–18%, with early-year investment cadence (Atlanta DC, AI) before margin improvement later in the year .
  • Balance sheet flexibility and capital returns: $428M cash at year-end; $57M buybacks in FY2024; management highlighted positioning to address 2026 convert later in 2025 .
  • Near-term watch items: front-loaded capex and working capital timing may pressure Q1 adjusted FCF margin; monitor AI infrastructure mix, gross margin cadence, and continued NDR improvement .

Additional Context: Prior Quarters and Q4 Product Releases

  • Q3 2024: Revenue $198.5M (+12% YoY), gross margin 60%, adjusted EBITDA $86.7M (44% margin), non-GAAP EPS $0.52; ARR $798M; NDR 97%; GenAI early availability; GPU droplets available to all customers Oct 1; 42 product features released .
  • Q2 2024: Revenue $192.5M (+13% YoY), gross margin 61%, adjusted EBITDA $81.6M (42% margin), non-GAAP EPS $0.48; ARR $781M; NDR 97%; GPU droplets EA and 24 features released .
  • Q4 2024 product highlights: GenAI Platform GA; Cloudways Copilot public preview; Spaces Per-Bucket Access Keys; VPC Peering; 49 new products/features in Q4 .
All non-GAAP figures reflect company-defined adjustments and reconciliations provided in the press releases/8-K exhibits **[1582961_0001582961-25-000033_a2024-q4dopressrelease.htm:10]** **[1582961_0001582961-25-000033_a2024-q4dopressrelease.htm:11]** **[1582961_0001582961-25-000033_a2024-q4dopressrelease.htm:12]** **[1582961_09dd386b94bd48759f345ede73f015d1_13]** **[1582961_09dd386b94bd48759f345ede73f015d1_15]** **[1582961_09dd386b94bd48759f345ede73f015d1_17]**.