Cloud computing platform DigitalOcean (NYSE: DOCN) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 15.7% year on year to $229.6 million. Guidance for next quarter’s revenue was better than expected at $237.5 million at the midpoint, 1.3% above analysts’ estimates. Its non-GAAP profit of $0.54 per share was 9.5% above analysts’ consensus estimates.
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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 EBITDA: $99.79 million vs analyst estimates of $89.58 million (43.5% margin, 11.4% 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
- Free Cash Flow Margin: 37%, up from 26.1% in the previous quarter
- 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: $3.53 billion
“DigitalOcean’s unified agentic cloud is driving accelerated momentum in Q3. Revenue increased 16% year over year and we delivered the strongest incremental organic ARR in our history,” said Paddy Srinivasan, CEO of DigitalOcean.
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
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, DigitalOcean’s sales grew at a solid 23.5% compounded annual growth rate over the last five years. 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 13.1% over the last two years was below its five-year trend. 
This quarter, DigitalOcean reported year-on-year revenue growth of 15.7%, and its $229.6 million of revenue exceeded Wall Street’s estimates by 1.4%. Company management is currently guiding for a 15.9% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 14.1% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its newer products and services will not catalyze better top-line performance yet.
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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 came in at $919 million in Q3, and over the last four quarters, its growth slightly lagged the sector as it averaged 14.2% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in securing longer-term commitments. 
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 99.2% in Q3. This means DigitalOcean would’ve grown its revenue by -0.8% 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 Q3 Results
We were impressed by how significantly DigitalOcean blew past analysts’ EBITDA expectations this quarter. We were also happy its annual recurring revenue outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Overall, this print had some key positives. The stock traded up 9.9% to $42.65 immediately after reporting.
Is DigitalOcean an attractive investment opportunity right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
