DigitalOcean’s third quarter results were met with a significant positive market reaction, reflecting strong execution and outperformance versus Wall Street expectations. Management credited the momentum to rapid growth among AI-native customers, an expanding base of high-spend digital enterprises, and increasing customer adoption of agentic cloud capabilities. CEO Padmanabhan Srinivasan highlighted that, “Demand for our agentic cloud has exceeded our supply,” citing the company’s ability to attract and retain larger customers as a notable achievement this quarter. The introduction of new features and a strategic focus on unified cloud offerings further contributed to the company’s robust top-line and margin expansion.
Is now the time to buy DOCN? Find out in our full research report (it’s free for active Edge members).
DigitalOcean (DOCN) Q3 CY2025 Highlights:
- Revenue: $229.6 million vs analyst estimates of $226.5 million (15.7% year-on-year growth, 1.4% beat)
- Adjusted EPS: $0.54 vs analyst estimates of $0.49 (9.5% beat)
- Adjusted Operating Income: $69.65 million vs analyst estimates of $59.51 million (30.3% margin, 17% beat)
- Revenue Guidance for Q4 CY2025 is $237.5 million at the midpoint, above analyst estimates of $234.4 million
- Adjusted EPS guidance for Q4 CY2025 is $0.38 at the midpoint, below analyst estimates of $0.46
- Operating Margin: 19.6%, up from 12.4% in the same quarter last year
- Net Revenue Retention Rate: 99%, in line with the previous quarter
- Annual Recurring Revenue: $919 million vs analyst estimates of $904.3 million (15.8% year-on-year growth, 1.6% beat)
- Billings: $227 million at quarter end, up 15.1% year on year
- Market Capitalization: $4.57 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From DigitalOcean’s Q3 Earnings Call
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Gabriela Borges (Goldman Sachs) asked about the overlap between new 8-figure contracts and AI customers, questioning the durability of these workloads. CEO Padmanabhan Srinivasan explained that most large contracts now blend AI and core cloud, with inference workloads providing predictable, scalable growth.
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Radi Sultan (UBS) inquired whether recent hyperscaler outages led to increased migration to DigitalOcean. Srinivasan said migration momentum is mainly driven by DigitalOcean’s expanded feature set rather than single incidents, with advanced storage and networking attracting sophisticated workloads.
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Josh Breyer (Morgan Stanley) wanted clarity on DigitalOcean’s capacity to support recent big contracts and the timeline for new data centers. Srinivasan and CFO Matt Steinfort confirmed existing data centers handle initial ramp-up, while most new capacity comes online in early 2026, supporting a smooth revenue ramp.
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William Kingsley Crane (Canaccord Genuity) asked how the company views competition from peers acquiring PaaS capabilities. Srinivasan noted DigitalOcean’s focus on a unified agentic cloud stack and rapid, customer-driven feature development as differentiators.
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Matthew Calitri (Needham & Company) questioned whether AI revenues will be included in net dollar retention metrics given their growing predictability. Steinfort said management is evaluating this, as AI contracts now resemble traditional cloud workloads in consistency and scale.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will closely monitor (1) the pace at which DigitalOcean brings new data center and GPU capacity online to meet surging AI demand; (2) adoption and monetization of new platform features by large enterprise and AI-native customers; and (3) the company’s ability to maintain high adjusted free cash flow margins as operating investments accelerate. The trajectory of large contract wins and ecosystem expansion will also be important indicators of sustained growth.
DigitalOcean currently trades at $49.85, up from $38.81 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).
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