There are dozens of big players in the realm of cloud computing, including popular names like Amazon Web Services, Microsoft Azure and Google Cloud Platform. But what about DigitalOcean? It’s not the biggest cloud computing company in the world, but it might be one of the simplest.
DigitalOcean is looking to IPO this week. We’re breaking down some of the broader points for investors from the company’s S-1 filing, which consists of all of the important information about a business and must be completed and filed with the SEC in order for the company to go public.
We’ve read the entire report and put together the top five things you need to know to help investors digest this upcoming IPO:
1. It’s All About Simplicity
In DigitalOcean’s S-1 filing, the company said its mission statement is to “simplify cloud computing so developers and businesses can spend more time creating software that changes the world.” That bold and underscored sentence falls early in the report. But if you read the entire report, you’ll start to see a recurring theme. The word ‘simple’ is used 20 times. The word ‘simplicity’ is used 20 times as well. The word ‘easy’ is used 34 times. Do you think they’re trying to tell us something? Absolutely.
DigitalOcean wants investors (and consumers) to know that their business is about simplifying everything: the pricing, platform, interface, customer support and anything else that falls at the fringes. They also want you to know that said simplicity has made them popular. The company flexes its "net promoter score,” which measures the likelihood that existing customers will recommend a company or product on a scale of zero to 100. Their score was 65, which they said is “comparable to some of the world’s most beloved brands.”
2. Cloud Computing Isn't Going Anywhere — And Neither is DigitalOcean
Based on the S-1 filing, DigitalOcean said the market opportunity for cloud computing will be $116 billion in 2024, and they think they can take an even bigger bite out of that market. But, DigitalOcean has a ways to go.
Annual recurring revenue (ARR) is a solid indicator for software-as-a-service (SaaS) to track how much business a digital company is generating and retaining. According to DigitalOcean, they’ve generated $357 million in ARR as of December 2020. They’re also generating this recurring revenue from 573,000 users (with an average revenue per user of approximately $48).
One thing that sticks out among all of these numbers (and there are a lot) is that the company’s year-over-year growth in revenue was 25% in 2019 and 2020. That kind of growth mimics a company like Dropbox in 2019 and Zoom in 2020. However, there is a cautionary tale in subscription-based SaaS companies: you only need so many people to have a storage or video subscription. How many people will need a cloud computing service for their web apps? Probably more than a few, but those few might spend a mint on services. So in that sense, DigitalOcean’s opportunity is massive.
3. DigitalOcean is Reaching an International Audience
DigitalOcean said their customers are spread “across over 185 countries,” and that two-thirds of their revenue is coming from outside the U.S. In 2020, 38% of the company’s revenue came from North America, 30% from Europe, 22% from Asia and 10% from other geographies.
The size of the “Asia and other” markets is particularly interesting, seeing as though digital businesses are cropping up in emerging markets at breakneck pace. If startup and mid-sized companies in emerging markets are using DigitalOcean, this could be potentially very bullish for their long-term revenue growth.
4. The Company is Losing Money
The S-1 report includes financial information from 2018 through 2020. In all three years, the company has reported accelerating losses because of debt and other income expenses. Despite this, the company’s losses from research, development, marketing and administrative costs slowed tremendously in 2020. DigitalOcean could start generating a profit for shareholders if they continue to grow their revenue, taper their spend on operating expenses and defuse their dependence on borrowing and other costs. However, DigitalOcean’s stock price will likely suffer post-IPO if they fail to show evidence of progress.