Digital Ocean perks up on strong Q3 results, raised outlook

What happened

Digital Ocean shares gained more than 3% in premarket trading after the cloud company reported third-quarter results above expectations and raised its outlook. Revenue rose 39.6% from a year earlier to $321M, and adjusted earnings were $0.45 per share.

Confirmed

Global impact / market context

Faster revenue growth and higher profit per share than analysts expected signal strong demand for the company's cloud services. The raised fourth-quarter and full-year outlook suggests management expects that demand to continue, which supports the shares even though expected adjusted earnings are slightly lower.

Analyst inference

Investors compare results with analyst estimates, so beating both revenue and earnings often lifts a stock before the open. The raised full-year revenue range of $1.208B to $1.211B sits above the $1.18B consensus, a sign the company expects steady customer spending on cloud capacity.

Analyst inference

What to watch

1. Fourth-quarter revenue is guided to $348M to $351M, above the $306.74M analysts expected, while adjusted earnings are guided to $0.30 to $0.32 per share. Confirmed
2. Watch whether Digital Ocean spends more on data center capacity and AI computing to serve demand, since higher capital spending would raise costs before it adds revenue. Proposed
3. Track whether the record $160M of annual recurring revenue, which is recurring subscription revenue, keeps growing, because a slowdown would undercut the raised outlook. Analyst inference

Evidence

• seekingalpha.com