DigitalOcean Holdings (DOCN)·Q4 2025 Earnings Summary

DigitalOcean Hits $1B Run Rate, Raises 2026 Growth Outlook to 21%

February 24, 2026 · by Fintool AI Agent

DigitalOcean delivered a clean triple beat in Q4 2025, crossing the $1 billion annualized revenue milestone while posting record customer growth metrics. Revenue of $242M beat consensus by 2%, Non-GAAP EPS of $0.44 beat by 15.5%, and the company raised its 2026 growth outlook to 21% — targeting "Rule of 50" profitability by 2027. The stock surged 6.2% to $62.91, bringing its gain since 52-week lows to nearly 150%.

Did DigitalOcean Beat Earnings?

DigitalOcean exceeded expectations across all key metrics:

Revenue grew 18% year-over-year, accelerating from 16% in Q3 2025 and 13% in Q4 2024. The company reached $970M in ARR, hitting the $1 billion annualized monthly revenue milestone in December 2025.

What Did Management Guide?

Management raised the growth outlook significantly:

Key outlook commentary from CEO Paddy Srinivasan:

"We crossed a major milestone, surpassing a billion-dollar revenue run rate. This is a remarkable achievement for a company that was founded through Techstars in 2012."

"We are projecting to exit 2026 at 25%+ revenue growth, with a clear path to 30% growth in 2027 with the existing committed data center capacity alone."

Q1 2026 guidance of $249-250M implies 18-19% growth. Management expects revenue growth to remain at ~18-19% in Q2 before ramping in Q3 and exiting the year at 25%+ in Q4 as new data center capacity comes online.

RPO Momentum: Remaining Performance Obligations surged to $134M, up 121% sequentially and ~500% year-over-year — providing increased visibility into the revenue ramp.

What Changed From Last Quarter?

Customer Momentum Accelerated

The standout metric was customer concentration improvement among high-value accounts:

Net Dollar Retention improved to 101% (up 200 bps YoY), with $1M+ customers showing 115% NDR and 0% churn.

Digital Native Enterprise (DNE) ARR reached $604M in Q4, now representing 62% of total ARR and growing 30% year-over-year. These top customers — cloud and AI-native companies — have transformed from a constraint to DigitalOcean's primary growth engine.

AI Revenue Inflection

AI Customer ARR surged 150% year-over-year to $120M:

Critically, more than 70% of AI customer revenue comes from inference services and core cloud — not bare metal GPU rentals. This differentiates DigitalOcean from "neo-clouds" and GPU farms.

OpenClaw Viral Adoption: Within days of launch, nearly 30,000 native OpenClaw GPU droplets were created on DigitalOcean, with thousands more deployments activated by customers. Management called this "an early view of how the AI market will continue to evolve" as autonomous agents orchestrate complex, multi-step workflows.

Organic Growth Record

The company delivered record incremental organic ARR of $51M in Q4, up 98% year-over-year. Full-year organic ARR growth was $150M, up 56% from $96M in 2024.

How Did the Stock React?

DOCN shares rose 6.2% to $62.91 following the results, with intraday highs reaching $63.48.

Context on valuation:

• Market cap: ~$5.76B
• Trading at ~5.3x forward revenue (FY 2026 guidance midpoint)
• 52-week range: $25.45 - $70.43
• Stock has rallied 147% from 52-week lows
• Trading above both 50-day ($54.71) and 200-day ($39.57) moving averages

The positive reaction reflects:

1. Clean beat across all metrics
2. Raised guidance with credible path to 25%+ growth
3. AI traction proving out with visible customer wins
4. Maintained profitability (42% EBITDA margin for full year)
5. RPO surge providing visibility into growth ramp

Key Business Highlights

Top Customer Wins

Management highlighted marquee AI customer wins with specific benchmarks:

• Character.ai: DigitalOcean delivered a 100% throughput increase and ~50% lower cost per token on production inference powered by AMD Instinct GPUs. "This is not a lab benchmark. This is on live traffic across tens of millions of customers."
• Hippocratic AI: Healthcare-focused conversational AI selected DigitalOcean's Agentic Inference Cloud to power HIPAA-compliant clinical AI workloads. The deployment validates DigitalOcean's enterprise-grade security and compliance capabilities.
• Ocado: Expanded production workloads as an AI-native company with product market fit and rapidly scaling demand.

Product Innovation

New capabilities launched in Q4 include:

• Remote MCP support for AI-enabled infrastructure management
• Agent Development Kit (public preview)
• GPU observability enhancements
• Managed NFS for GPU workloads
• Multi-node AMD GPU support

Legacy Bare Metal Wind-Down

DigitalOcean is exiting its legacy dedicated bare metal CPU offering to focus on cloud and AI platform.

• Impact: ~$13M ARR decrease in 2026
• Exit costs: $5-8M expected in 2026
• Rationale: Refocus resources on higher-growth AI and cloud platform

Financial Trends

Revenue Growth Acceleration

Profitability Maintained

Balance Sheet

• Cash: $254M
• Undrawn revolver: $300M
• Net leverage: 3.2x (expected to rise above 4x near-term with DC expansion before returning below 4x)
• 2026 Convertible Notes: $312M remaining, will be repurchased or redeemed for cash before December 2026 maturity
• No material debt maturities until 2030 after addressing 2026 notes

What to Watch

Near-Term Catalysts

• Q2-Q4 2026: New data center capacity ramp (31MW total across 3 facilities)
• Revenue acceleration: Management expects growth to reach 25%+ by Q4 2026
• AI customer expansion: Tracking toward continued 100%+ AI ARR growth

Key Risks

• Capacity timing: Gross margin and net income pressure expected near-term as GPU depreciation and lease expense precede revenue by ~2 months. "The initial impact will just be larger, as we are turning up more capacity at one time than we've done in the past."
• Net leverage: Will exceed 4x temporarily as finance lease obligations increase ahead of revenue ramp
• Component costs: Management acknowledged increased component costs (including memory), which is reflected in guidance but has not changed return expectations
• Competition: Hyperscalers (AWS, Azure, GCP) and "neo-clouds" (CoreWeave, Lambda) competing for AI workloads

Management Credibility

DigitalOcean has beaten consensus in each of the last 8 quarters under CEO Paddy Srinivasan. The 2026 guidance raise follows a similar raise just last quarter, suggesting management has visibility into sustained acceleration.

What Did Analysts Ask About?

Open Source AI Models and Inference Economics

Raimo Lenschow (Barclays) asked about the inference market landscape beyond OpenAI, Anthropic, and Google. CEO Srinivasan highlighted that open source models are ~90% cheaper per token and already have 30% market share:

"The cost per token for the open source models is about 90% cheaper, with a very comparable accuracy as these open source models mature. We have many AI native customers that are using a variety of open source models at real time... routing the request intelligently to these open source models."

Rule of 50 Math

CFO Matt Steinberg clarified the weighted Rule of 50 calculation: multiply revenue growth by 1.5 and add 0.5x free cash flow margin. This effectively counts growth as 3x more valuable than cash flow margin. But he noted that DigitalOcean is also a regular Rule of 50 company with projected 30% growth + 20% unlevered FCF margins in 2027.

ARR Per Megawatt Economics

Kingsley Crane (Canaccord) asked about revenue efficiency. CFO Steinberg noted DigitalOcean generates $22M ARR per megawatt today — well above the $9-12M range typical for neoclouds with bare metal models. Even as AI mix grows, this is expected to drop only to ~$20M by end of 2027.

GPU Payback and Equipment Leasing

Gabriela Borges (Goldman Sachs) asked about GPU payback periods. CFO Steinberg explained the equipment leasing strategy:

"We're leasing the gear, which means we're earning more ARR per megawatt and per the associated GPU investment than what a Neocloud would earn. We're also earning cash on that within months of actually deploying it."

Customer Composition

Thomas Blakey (Cantor) asked about overlap between $1M+ customers and AI customers. CFO revealed that ~half of million-dollar customers are AI customers on an account basis, skewing slightly higher on ARR basis. Additionally, 48% of trailing 12-month incremental ARR is coming from AI customers.

Free Cash Flow Methodology

James Fish (Piper Sandler) pressed on free cash flow tiers. CFO Steinberg explained:

• Unlevered adjusted FCF: 18-20% margin (use for valuation)
• Levered adjusted FCF: ~2-3 points lower (includes interest expense)
• Including all financing payments: Still generating positive cash while accelerating growth to 30%

"We're generating cash while we're accelerating the growth of this business into the 30s... That's an incredibly strong position to be in."

Competitive Differentiation

Param Singh (Oppenheimer) asked about sustainable advantages vs. neoclouds. CEO Srinivasan emphasized:

"Not only do I think we have an advantage now, our lead is increasing... Inferencing is very different from training. The needs, all the way from the way GPUs are networked and the cluster sizes, everything is so different."

Upcoming Catalysts

Deploy Conference — April 28, 2026 in San Francisco: Management will unveil the next wave of Agentic Inference Cloud capabilities, including detailed customer benchmarks and product innovations.

New Leadership: Vinay Kumar joined as Chief Product and Technology Officer from Oracle Cloud Infrastructure, where he was a founding member. He leads product, platform, infrastructure, and security teams with a mandate to continue building out the Inference Cloud and raising the bar on core cloud capabilities.

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Data sourced from DigitalOcean Q4 2025 earnings call transcript, investor presentation, and S&P Global.