DigitalOcean starts trading on New York Stock Exchange (NYSE)
The stock started trading at $41.50 per share, about 12% lower than the $47 price at which it sold shares in its initial public offering, and below the range of $44 to $47 per share the company had provided in updates to its IPO prospectus. At its opening price, it has a $4.37 billion market cap.
Shares were down about 5.5% on Wednesday afternoon.
DigitalOcean challenges much bigger companies, including Amazon and Microsoft, in the market to provide computing and storage resources that companies can consume to run their software, instead of operating their own data center infrastructure. DigitalOcean has built up a business by keeping its products easy to use. Most of its revenue come from the use of droplets, which are virtual slices of physical servers.
“We give every customer, regardless of size, a personalized support experience, so we think that making it easy and simple and giving our customers help when they need it is the way to earn every day our developers’ and entrepreneurs’ hearts and minds,” CEO Yancey Spruill said on CNBC’s “Squawk Alley.” He said the market is large, with over $100 billion in annual cloud spending for small and medium-sized businesses.
DigitalOcean raised $775 million in the IPO. The company operates 14 data centers of its own in the U.S. and abroad through leases, and the company intends to continue expanding its footprint, like its competitors. But unlike its large rivals, DigitalOcean doesn’t have billions of dollars that customers have agreed to pay for services they have not used yet. The company had less than $5 million in deferred revenue at the end of 2020.
In 2020 DigitalOcean registered a $43.6 million net loss on a total of $318.4 million in revenue. The loss was up 7% from 2019, and revenue grew by about 25%. In a presentation to prospective investors, finance chief Bill Sorenson said the company wants to increase the amount of money it derives from each customer while reducing research and development and general administrative costs as a percentage of revenue.
At its $47 IPO price, DigitalOcean was valued at a price-to-sales multiple of 16 based on 2020 revenue, compared with 12 for Microsoft.