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Prices for Digital Ocean software are meant to be transparent, with rates listed on the website.
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Digital Ocean appears to have picked the wrong day to come public.
A provider of cloud-based services for software developers, startups, and small companies, Digital Ocean priced an initial offering of 16.5 million shares at $47 each on Tuesday, raising $776 million. That price, at the high end of the expected range of $44 to $47 a share, gave the company a market capitalization of $5.8 billion on a fully diluted basis.
But Digital Ocean arrived in the public market on a day when investors are dumping shares of cloud-based enterprise software companies. The stock traded as low as $39.01. Toward the end of the trading day, the stock was down about 8% at $43.33.
According to the company’s prospectus. Digital Ocean (ticker: DOCN) had 2020 revenue of $318.4 million, up 25% from the previous year, while earnings before interest, taxes, depreciation and amortization, or Ebitda, totaled $95.9 million, up 74%. The company had a loss for the year of $43.6 million, slightly wider than the 2019 loss of $40.4 million.
“Our mission is to simplify cloud computing so developers and businesses can spend more time creating software that changes the world,” the company said its prospectus. “We estimate there are approximately 100 million SMBs [small-and-medium sized companies] globally today and 14 million new businesses started each year across the globe.”
In an interview with Barron’s Digital Ocean CEO Yancey Spruill said the company has nearly 600,000 customers who rely on it for tools to help developers create and distribute software. He said the company focuses on creating easy-to-use tools, with transparent pricing (rates are listed on the website) and a deep library of support documentation that he says attracts 5 million readers every month. About 70% of the customer base is outside the U.S.
Spruli said the opportunity to serve startups and small- and medium-size businesses is mammoth, with an addressable market of over $100 billion. The market is growing about 27% a year, and Digital Ocean can eventually accelerate its own growth to 30% a year or higher, he said.
Venture investors in the company include affiliates of Access Industries, a firm controlled by billionaire investor
Len Blavatnik,
with 22% after the offering; Andreessen Horowitz, with a 14.8% stake; and IA Ventures, with 14%.
Goldman Sachs
and J.P, Morgan led the IPO underwriting group. The stock is listed on the New York Stock Exchange.
Write to Eric J. Savitz at eric.savitz@barrons.com
