Special Episode - Digital Ocean - Dubious Prospects
We have tons of research and unique insights on DOCN. However, we are too doubtful about its long-term prospects to call it a sure bet, or a long-term holding. At the same time, its fundamentals are not that bad to be a clear short candidate. Thus, so far we've decided not to publish a full written report on DOCN. Instead, we have recorded this special podcast episode to highlight our perspectives.
TL;DR: DOCN's ability to sustain a 30%+ CAGR for 3+ years, as guided by the management and widely priced-in by analysts, is highly questionable in our opinion. We see DOCN is in a weaker position, and most analysts have missed two points here:
- DOCN's inability to expand into the most lucrative enterprise segment,
- DOCN's easy growth in recent years achieved by raising ARPU is close to over. It has raised the ARPU from 50% discount vs. peers, to zero discount or even a slight premium.
These are big reasons why we don't think it is able to achieve very durable growth to be a multi-fold investment opportunity. The caveat, however, is that DOCN has demonstrated the recipe for winning in this highly commoditised, SMB-focused, cost-leadership market, which is extremely efficient for S&M and which has a CAC that is 1/3 to 1/5 of its close competitors.
We recommend investors treat DOCN more as a range bound opportunity, whereby the upside is capped while the bottom end is fairly secured too.
Press play to listen to the audio.
