American cloud computing firm DigitalOcean recently announced that it is aiming to be valued at a staggering $4.8 billion in its New York Stock Exchange IPO later this year.

The company plans to offer about 16.5 million shares for $44-$47 per share, valuing the offering at over $755.5 million. According to company executives, Tiger Global and a subsidiary of an existing investor, Access Industries are expected to buy shares worth as much as $175 million in this IPO. Morgan Stanley, Goldman Sachs and J.P Morgan are the lead underwriters for the deal.

While industry giants like Amazon, Alibaba, Google, Microsoft, Oracle and IBM already offer cutting edge cloud services, DigitalOcean has the distinction of being the only company that focuses only on cloud computing. The company holds great pride in its founding principle of ‘Simplicity’ and states that it has helped them stay miles ahead of the competition. In a letter to investors which is now being seen as a mini-prospectus of sorts, DigitalOcean’s CEO Yancey Spruill wrote:

‘We take infrastructure technology and make it simple across all aspects of the product experience.’

Contrary to what the $5 billion market capitalisation and avid investor interest would suggest, DigitalOcean has not been profitable so far. The company lost about $44 million in 2020, as opposed to the $40 million that it lost in 2019. It cited expansion expenses and fluctuations caused by COVID as major reasons for this. It is worth noting that the company saw a healthy 25% growth in revenue last year.

Unlike major competitors, DigitalOcean currently caters to a number of small developers, startups and small-to-medium sized businesses in the U.S. In all, the company claims to have over 570,000 customers in over 185 countries. DigitalOcean has stuck to its motto of efficiency in simplicity so far, sticking to the handful of products that it started out with. These include customisable Linux-based virtual machines that it calls droplets, data-storage options, networking tools and three databases.

The company’s digital platform currently has over 6,000 tutorials available for customers to help them figure out the products and use them efficiently. It also claims that its websites have been seeing over 5 million unique monthly visitors for the past year or so. DigitalOcean says that its average revenue per customer was $47.78 in 2020, up from $35.97 in 2018.

About the industry

DigitalOcean believes that there is a huge upside to working with SMBs and developers. It cited research data in its prospectus that shows that the developer market is expected to reach the $30 million figure by 2030. It is currently at just under $19 million. The SMB market too is expected to host about 14 million new SMBs every year leading upto 2030. This means that there is a lot of potential for DigitalOcean to tap into a lucrative market that the major cloud companies have left more or less unattended so far. The New-York based company has already acquired a truly global clientele for itself. It currently boasts customers such as Romania’s Bunnyshell, Malta’s Cloudways, Nigeria’s Jiji, Israel’s Vidazoo and India’s Whatfix. A majority of the company’s clients are currently based out of the U.S, as opposed to other major industry leaders.

Looking Forward

DigitalOcean is hoping to make a mark for itself in a competitive market on the back of its unique selling points of being lucid and extremely accessible. In its IPO prospectus that it submitted to the SEC, DigitalOcean took a jab at the current cloud computing companies in the market by stating that their products aren’t intuitive enough for sole developers and small businesses. As a result, they:

‘suffer from near-infinite feature complexity and have opaque pricing and billing practices that are often accompanied by significant hidden costs.’

Consequently,, the company believes that small businesses are often unable to enjoy the benefits of cloud computing. This statement accurately sums up the philosophy that DigitalOcean abides by.

While the competition is still fierce with competitors like AWS making almost hundred times as much revenue as DigitalOcean, the company is certainly looking to pose a challenge by trying to cater to and dominate a niche in the market.