DigitalOcean (DOCN) Q2 Revenue Jumps 14% | The Motley Fool

DigitalOcean (DOCN 29.01%), a cloud computing company known for its simple, developer-friendly approach, reported its Q2 2025 results on August 5, 2025. The company’s earnings release featured GAAP revenue of $219 million—topping the analyst consensus of $216.62 million (GAAP). Non-GAAP earnings per share (EPS) were $0.59, exceeding the $0.47 non-GAAP estimate by a significant margin. These results represented double-digit year-over-year growth. The company also achieved strong profitability, with a net income margin of 17% (GAAP) and an adjusted EBITDA margin of 41%, and issued higher full-year guidance, while highlighting robust momentum in both core cloud and AI product adoption. Overall, the quarter reflected strong execution on strategic priorities.

Source: Analyst estimates provided by FactSet. Management expectations based on management’s guidance, as provided in Q1 2025 earnings report.

What Does DigitalOcean Do and What Matters Most?

DigitalOcean provides cloud computing services, including virtual servers (“droplets”), managed databases, and scalable storage, primarily for software developers, small businesses, and emerging digital enterprises. The platform emphasizes simplicity, ease of use, and transparent pricing. DigitalOcean stands out by offering a user-friendly interface and support, attracting both early-stage ventures and larger digital native businesses seeking less complexity than traditional hyperscale providers offer.

In recent years, DigitalOcean’s main priorities have been expanding its base of high-spend customers, growing its product portfolio—particularly in artificial intelligence (AI) and machine learning (ML), and maintaining a reputation for straightforward, approachable services. Success for DigitalOcean depends on growing these larger accounts, increasing average revenue per customer, and rolling out features that keep pace with evolving demand from both small businesses and digital native enterprises.

Quarter Highlights: Execution and Expansion

GAAP revenue for Q2 2025 was $219 million, a 14% year-over-year increase, beating market estimates. Non-GAAP EPS was $0.59, outpacing expectations by $0.12 (non-GAAP). Net income (GAAP) was $37 million, an increase of 93% year-over-year, with a net income margin increase from 10% to 17% (GAAP) over the prior year period. Adjusted EBITDA reached $89.5 million, reflecting steady operational profitability at a 41% adjusted EBITDA margin.

The most notable progress came from DigitalOcean’s higher spend customer segment, which the company calls “Scalers+”. Revenue from these customers increased 35% year-over-year. The Scalers+ group now makes up 24% of DigitalOcean’s total revenue. The average revenue per customer (ARPU) across this cohort climbed to $30,000, up 9% year-over-year, while overall ARPU increased by 12%. The number of Scalers+ customers grew by 23%, though this growth rate slowed slightly from earlier in the year. A key indicator for recurring revenue, the net dollar retention rate, improved to 99% from 97% compared to Q2 2024

DigitalOcean continued to build out its product line, releasing more than 60 new products and features. Major launches included the DigitalOcean Gradient AI Platform, which lets customers build generative AI agents drawing from a range of industry-leading AI foundation models, and new GPU droplets powered by AMD Instinct AI accelerators. The partnership with AMD also enabled DigitalOcean to host the AMD Developer Cloud, enhancing its position in the AI/ML market. Management confirmed that AI/ML-related revenue more than doubled year-over-year, though specific figures were not disclosed. Annualized run-rate revenue increased by $32 million, marking the highest incremental ARR growth since Q4 2022.

Simplicity and ease-of-use remained a central theme as the company sought to differentiate itself from larger, more complex cloud platforms. More than 80% of new Gradient AI Platform users were existing DigitalOcean customers as of Q1 2025.

The company expanded support for large customers by extending dedicated account management to its top 3,000 clients, up from 1,500 previously. This move, along with additional investments in customer support and a growing developer community, aims to deepen relationships and boost customer retention. The company continued to host events and maintain a robust online community as part of its engagement strategy.

In terms of financial operations, adjusted free cash flow rose to $57 million, up 52.4% from last year. Cash from operating activities (GAAP) improved to $92 million. However, cash and equivalents fell to $387.7 million, reflecting higher capital expenditures and share repurchases. Long-term debt was $1.49 billion as of June 30, 2025. DigitalOcean bought back 0.7 million shares, bringing its total repurchases since the IPO to $1.6 billion through June 30, 2025.

Remaining performance obligation was $53 million, up from $3 million last year. Management indicated that these larger deals introduce both new opportunities for revenue and risks related to capital intensity and possible revenue lumpiness. The company is exploring new funding tools, such as leasing, to maintain cash flow while expanding capacity. Management stated in Q1 2025 that they are evaluating leasing arrangements to support cloud and AI growth capital investment, with the goal of maintaining or improving strong cash flow generation.

Looking Forward: Guidance and Watch Areas

Management raised its outlook for the remainder of FY2025 following these results. For Q3 2025, revenue is projected at $226–227 million, with an adjusted EBITDA margin of 39–40% for FY2025. Non-GAAP EPS is expected to be between $0.45 and $0.50 for Q3 2025. For the full year FY2025, guidance was raised to $888–892 million in revenue and a 39–40% adjusted EBITDA margin for the full year. Management expects non-GAAP diluted net income per share of $2.05–$2.10 for FY2025, up from prior estimates.

Investors should focus on the company’s ability to continue growing its higher spend customer base, further expand ARPU, and keep up its pace of product launches, especially in AI/ML and managed services. The shift toward larger enterprise deals is increasing the company’s cash needs, prompting management to consider additional funding strategies similar to those used by larger public cloud providers. Other key topics for future quarters include digital native enterprise customer expansion, gross margin improvement, and the balance between capital investment, debt, and free cash flow.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.