DigitalOcean (NYSE:DOCN) Beats Q4 CY2025 Sales Expectations, Growth To Accelerate Next Year

Cloud computing platform DigitalOcean (NYSE:DOCN) announced better-than-expected revenue in Q4 CY2025, with sales up 18.3% year on year to $242.4 million. Guidance for next quarter’s revenue was better than expected at $249.5 million at the midpoint, 0.5% above analysts’ estimates. Its non-GAAP profit of $0.44 per share was 15.5% above analysts’ consensus estimates.

Is now the time to buy DigitalOcean? Find out by accessing our full research report, it’s free.

Company Overview

Built for simplicity in a world of complex cloud solutions, DigitalOcean (NYSE:DOCN) provides a simplified cloud computing platform that enables developers and small businesses to quickly deploy and scale applications.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, DigitalOcean grew its sales at a solid 23.1% compounded annual growth rate. Its growth beat the average software company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. DigitalOcean’s recent performance shows its demand has slowed as its annualized revenue growth of 14.1% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

This quarter, DigitalOcean reported year-on-year revenue growth of 18.3%, and its $242.4 million of revenue exceeded Wall Street’s estimates by 2%. Company management is currently guiding for a 18.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 18.4% over the next 12 months, an improvement versus the last two years. This projection is admirable and implies its newer products and services will catalyze better top-line performance.

The 1999 book Gorilla Game predicted Microsoft and Apple would dominate tech before it happened. Its thesis? Identify the platform winners early. Today, enterprise software companies embedding generative AI are becoming the new gorillas. a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Annual Recurring Revenue

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

DigitalOcean’s ARR punched in at $970 million in Q4, and over the last four quarters, its growth slightly outpaced the sector as it averaged 15.4% year-on-year increases. This performance aligned with its total sales growth and shows the company is securing longer-term commitments. Its growth also contributes positively to DigitalOcean’s revenue predictability, a trait long-term investors typically prefer.

Customer Retention

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

DigitalOcean’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 99.8% in Q4. This means DigitalOcean would’ve grown its revenue by -0.2% even if it didn’t win any new customers over the last 12 months.

DigitalOcean has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

Key Takeaways from DigitalOcean’s Q4 Results

We were impressed by how significantly DigitalOcean blew past analysts’ EBITDA expectations this quarter. We were also glad next year’s revenue guidance was robust. On the other hand, its full-year EPS guidance missed and its EPS guidance for next quarter fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 1.7% to $60.25 immediately following the results.

Is DigitalOcean an attractive investment opportunity at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here (it’s free).