Yahoo Finance DigitalOcean (DOCN) Shares Skyrocket, What You Need To Know
What Happened:
Shares of cloud computing provider DigitalOcean (NYSE: DOCN) jumped 9% in the pre-market session after the company reported first quarter results. DigitalOcean materially improved its gross margin this quarter. Its ARR (annual recurring revenue) also outperformed Wall Street's estimates. Guidance produced no surprises, with revenue for next quarter and the full year in line, showing that the company is on track. Overall, this quarter's results seemed fairly positive, and shareholders should feel optimistic.
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What is the market telling us:
DigitalOcean's shares are very volatile and over the last year have had 21 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago, when the stock gained 7.6% on the news that the S&P Dow Jones Indices announced that the company will replace Agiliti Inc. (AGTI) in the S&P SmallCap 600 index before the opening of trading on Tuesday, May 7, 2024. Being included in the index means that DigitalOcean will likely be held by many mutual funds and ETFs, which could potentially drive up demand for the stock. We note that while buying of the stock could increase, this development does not change the fundamentals of the company. Revenue growth, expense efficiency, and capital intensity of the business, for instance, are not impacted by index inclusion or exclusion, so this is more of a technical tailwind for the stock.
DigitalOcean is down 4.6% since the beginning of the year, and at $34.57 per share it is trading 30.7% below its 52-week high of $49.90 from July 2023. Investors who bought $1,000 worth of DigitalOcean's shares at the IPO in March 2021 would now be looking at an investment worth $813.18.
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