Digital Ocean off to a Harsh Start in the Stock Market

Wall Street welcomes the cloud computing firm with a 9.57% drop on debut day.

Topline

On March 24, 2021, the New York Stock Exchange enlisted a cloud computing firm, DigitalOcean, whose initial public offering was $47 per share.

Digital Ocean off to a Harsh Start in the Stock Market
Digital Ocean off to a Harsh Start in the Stock Market
Key Facts
  1. 1

    DigitalOcean amassed $775 million in its first IPO, which, according to the company, will be invested in infrastructure development.

  2. 2

    Despite 25% revenue growth compared to last year, relative loss also hiked 7%.

  3. 3

    DigitalOcean has gained popularity among small-scaled businesses, including startups on the global horizon.

  4. 4

    DigitalOcean acquired 14 data centers globally on lease.

Details

"DOCN" is the New York Stock Exchange identity symbol for the newly enlisted cloud host, DigitalOcean.

Trading kicked off 12% lower than the Initial Public Offering valuation, $41.50 and $47, respectively, despite prospecting a value ranging between $44 and $47. At the end of debut day, shares recorded a 9.57% drop to $42.50. This happens to be a rare event in modern days for tech stocks. The public market relishes tech firms, and evidently, the usual report is stocks surge on debut day.

Recent NYSE (New York Stock Exchange) filings alongside Digital Ocean are real estate firm Compass, online clothing reseller ThredUp and Tv Maker Vizio.

DigitalOcean has indirectly made a bold statement of taking the fight to much bigger competition like Google, IBM, Microsoft, Amazon, among others, in producing computing and storage resources that can be used to run the software, relieving firms of the need for data center infrastructure. DigitalOcean has made in product simplicity, with a high percentage of revenue-generating from droplets, which are virtual slivers of physical servers.

Our mission is to simplify cloud computing so developers can spend more time creating software that changes the world,

said the company prospectus,

We estimate there are approximately 100million SMBs globally today, and 14 million new businesses start each year across the globe.

The company envisions adding analytics software to help users make the most of data stored in databases, and it also plans to increase its datacenter population around the world. CEO Yann Sprulli mentioned taking advantage of a large market, where small and medium-sized businesses in cloud computing spend $100 billion annually.

This is achievable, having raised $770 million in its Initial Public Offering, led by Goldman Sachs Group's Morgan Stanley and JPMorgan Chase. Unlike its competitors, DigitalOcean cannot leverage billions of dollars to deliver unused services that customers are ready to pay for. At the end of 2020, the company only managed less than $5 million in deferred revenue.

According to the prospectus, about 570,000 customers, both individual and group, trust DigitalOcean to develop, build, and scale software applications.

DigitalOcean in 2020 reported a $43.6million net loss in revenue; this was 7% more than 2019, also experiencing revenue growth of 25% in 2020. In the prospectus, Bill Sorenson, DigitalOcean emphasized the company's intentions to make more money from customers, mitigating research, development, and administrative costs as percentage revenue.

Having the most significant stake in the company is Len Blavatnik of Access Industries Holdings LLC. Other influential stakeholders IA Venture Partners,  Andreessen Horowitz, and AI Droplet.

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