DigitalOcean Holdings, Inc. Q2 FY26 Earnings Analysis

- 2026 revenue expected to be $1.13B to $1.145B, representing 25% to 27% YoY growth. - Exit growth rate for 2026 approaching 30%, a full year ahead of prior guidance. - Revenue growth expected to accelerate to 50% or more in 2027, exceeding $1.7B. - Total committed data center capacity increased to ~135 megawatts, with 60 megawatts of new capacity coming online mainly in 2027. - Demand pipeline is 3 to 4x the current capacity, signaling strong future demand. - Expansion driven by AI-native cloud workloads, with AI customer ARR growing 221% YoY. - Product cycle and customer adoption expected to continue accelerating due to innovation in AI inferencing and Agentic workloads. - Strategic focus on balancing capacity allocation to serve diverse customers and maximize growth. - Strong customer retention and expansion, with higher ARR per megawatt as a key growth metric.

- **2026 Revenue Growth:** Revised upward to approximately 25%-27% year-over-year, with Q4 exit growth approaching 30%. - **2027 Revenue Growth:** Projected to exceed 50% year-over-year, up from prior 30% guidance, driven by incremental 60 MW capacity. - **Adjusted EBITDA Margins:** Expected 37%-39% in 2026; approximately 40% projected for 2027. - **Adjusted Free Cash Flow Margins:** Forecasted 9%-12% for 2026, including start-up costs; high teens in 2027. - **Operating Income:** Non-GAAP operating margin remains strong with expected slight decrease during investment phases. - **EPS Guidance:** For Q2 2026, non-GAAP diluted net income per share is $0.20-$0.23; full year 2026 guidance raised to $1.10-$1.20, reflecting improved operational efficiency despite share count increase. - **Profitability:** Positioned for durable and profitable growth with strong operating leverage amid rapid revenue expansion.

- Raised $888 million in equity in Q1 to expand data center and GPU capacity and strengthen balance sheet. - Secured approximately 60 megawatts of incremental data center capacity across four locations, an 80% increase in committed capacity, expected to ramp revenue in 2027. - Existing committed 31 megawatts capacity on track for 2026 delivery; new 60 megawatts capacity targeted for 2027 and 2028. - CapEx per megawatt for new capacity will be higher than prior 31 megawatt equipment, driven by rising component costs and higher-capacity hardware. - Investing in AI native cloud full stack, including direct liquid-cooled hardware deployments. - Capital allocation disciplined, with emphasis on maintaining strong balance sheet and attractive ROI. - Actively pursuing additional capacity beyond current commitments for 2027 and 2028 as customer demand grows. - Financing a material portion of equipment to align investment timing with revenue.

- In Q1, the company raised $888 million in equity proceeds. - The proceeds were used to repay the full $500 million Term Loan A, saving about $50 million per year in cash interest and mandatory prepayments. - They intend to use a portion of the remaining cash to retire $312 million of 2026 convertible notes upon maturity. - This results in a flexible balance sheet with no material debt maturities until 2030. - There is no mention of any current or planned new fundraising through debt or equity beyond these actions. - The company plans to continue disciplined capital allocation and financing a material portion of equipment for new facilities, but specific new fundraising is not indicated.

- The pipeline coverage is 3 to 4 times, or more, of the actual capacity available, indicating strong demand. - The company is actively thoughtful about resolving how to allocate capacity given the high demand. - They aim to operate like a cloud, serving many customers rather than concentrating on a few large ones. - There is ongoing active pursuit of additional data center capacity beyond the newly committed 60 megawatts targeted for 2027 and 2028. - They have secured approximately 60 megawatts of incremental data center capacity across four locations on top of the previously committed 31 megawatts. - Total committed data center capacity is approximately 135 megawatts. - They have not baselined any long-term guidance on any single customer despite marquee wins like Cursor.