Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “DigitalOcean,” the “company,” “we,” “our,” “us” or similar terms refer to DigitalOcean Holdings, Inc. and its consolidated subsidiaries.Overview
Our mission is to simplify cloud computing so that developers and businesses can spend more time building software that changes the world.
DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for developers, start-ups and small and medium-sized businesses, or SMBs. We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. Our platform simplifies cloud computing, enabling our customers to rapidly accelerate innovation and increase their productivity and agility. Over 570,000 individual and business customers currently use our platform to build, deploy and scale software applications. Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists. Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, and managed services, among many others. We believe that our focus on simplicity, community, open source and customer support are the four key differentiators of our business, driving a broad range of customers around the world to build their applications on our platform.
Cloud computing is revolutionizing how companies across the globe develop and deploy applications. The cloud offers lower upfront cost and superior flexibility, extensibility and scalability as compared to on-premise software development environments. These benefits are especially valuable for start-ups and SMBs, as they typically have more limited financial resources, operational expertise and IT personnel. As software and cloud-based technologies have become essential across industries and businesses of all sizes, the number of software developers and their strategic importance to organizations are both increasing significantly. According to SlashData, the number of developers globally was 19 million in 2019 and is expected to grow to 45 million by 2030.
Improving the developer experience and increasing developer productivity are core to our mission. Our developer cloud platform was designed with simplicity in mind to ensure that software developers can spend less time managing their infrastructure and more time turning their ideas into innovative applications to grow their businesses. Simplicity guides how we design and enhance our easy-to-use-interface, the core capabilities we offer our customers and our approach to predictable and transparent pricing for our solutions. We offer mission-critical infrastructure solutions across compute, storage and networking, and we also enable developers to extend the native capabilities of our cloud with fully managed application, container and database offerings. In just minutes, developers can set up thousands of virtual machines, secure their projects, enable performance monitoring and scale up and down as needed. Our pricing is consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments.
The global developer and open source communities are fundamental to our business, and a key source of ideas and innovations that support our sustained growth. Our developer-centric approach has helped us foster a large and loyal following. We attract approximately 5 million monthly unique visitors to our websites, host what we believe is the largest hackathon in the world, and offer a comprehensive library of high-quality technical tutorials and community-generated questions and answers. Developers and SMBs especially value open source technology as it allows them greater choice, affordability and flexibility, and our platform is designed to take advantage of open source technology to provide our customers with a much more efficient way to work. Our participation in and support of the open source community further enhance the attractiveness, depth and scalability of our offering.
Our customers depend on us for their critical business needs, and we are passionate about providing superior 24x7 customer support to all of our customers, regardless of size. We believe our customer support, coupled with our easy-to-use self-help resources and active developer community, has created tremendous brand loyalty amongst our growing customer base. Our customers become great advocates for DigitalOcean and are a common source of new customer referrals. We are proud of our Net Promoter Score, or NPS, which averaged 65 during 2020, comparable to some of the world’s most beloved brands.
We have a highly efficient self-service customer acquisition model, which we have recently complemented with a targeted inside sales force. Our sales and marketing expense as a percentage of revenue was approximately 14%, 12% and 11% in 2018, 2019 and 2020, respectively. The efficiency of our go-to-market model and our focus on the needs of the individual and SMB market have helped us build a global customer base that continues to grow. We had approximately 573,000 customers as of December 31, 2020, up from approximately 502,000 as of December 31, 2018. Our customers are spread across over 185 countries, and around two-thirds of our revenue has historically come from customers located outside the United States. We have a growing number of customers with higher spending levels, and our existing customers are continuing to expand their business with us. Our average revenue per customer (which we refer to as ARPU) has increased significantly, from $35.97 in 2018 to $40.16 in 2019 to $47.78 in 2020. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for additional information.
We have experienced strong revenue growth and improving margins in recent periods. For the years ended December 31, 2018, 2019 and 2020, our revenue was $203.1 million, $254.8 million and $318.4 million, respectively, representing year-over-year growth of 25% in 2019 and 2020. Our net loss attributable to common stockholders was $36.0 million, $40.4 million and $43.6 million for the years ended December 31, 2018, 2019 and 2020, respectively. Our adjusted EBITDA was $39.5 million, $55.2 million and $95.9 million for the years ended December 31, 2018, 2019 and 2020, respectively. Our net cash provided by operating activities was $38.0 million, $39.9 million and $58.1 million for the years ended December 31, 2018, 2019 and 2020, respectively. See the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures” for additional information regarding adjusted EBITDA, the limitations of this non-GAAP financial measure and a reconciliation of this measure to the most directly comparable financial measure stated in accordance with GAAP.
Industry Background
There are a number of key technology and industry trends driving our opportunity, including:
operations. Start-ups and SMBs are particularly focused on leveraging the cloud for capabilities that would otherwise be inaccessible due to the high cost and expertise needed to deploy these capabilities on-premise.
Limitations of Existing Offerings on Developers, Start-Ups and SMBs
Existing offerings from large public cloud vendors are designed for complex, enterprise use cases such as migrating legacy workloads from on-premise to the cloud. The products and services offered by these vendors are not tailored for the needs of individual developers, start-ups or SMBs. The limitations of these enterprise-focused offerings include the following:
Our Solution
DigitalOcean was founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. We pioneered the developer cloud platform to simplify cloud computing, enabling developers and developer teams to quickly deploy and scale applications, collaborate efficiently and improve business performance. Empowered by an easy-to-use self-service model, intuitive control panel and highly predictable pricing, our customers are able to rapidly accelerate innovation and increase their productivity and agility.
overcome challenges. Developers and engineers are a key part of our customer support team, and our technical support is—and always has been—available free of charge to all customers. Customers cite our attentive support as a key driver of their decision to start and grow their businesses on our platform.
Key Benefits to Our Customers
Our solution is designed to empower our target customers with best-in-class cloud technologies, while supporting them with superior customer service. This customer-centric focus underpins our mission of simplifying cloud computing so developers and businesses can spend more time building software that changes the world. Our NPS averaged 65 during 2020, which is comparable to some of the world’s most beloved brands. For our customers, the key benefits of our solution include:
We have a highly diverse customer base that uses our platform for a variety of projects and applications. Recent customer success stories include:
Our Market Opportunity
The Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) markets are two of the largest and fastest growing markets across all industries. According to IDC, the worldwide IaaS and PaaS markets for individuals and companies with less than 500 employees are estimated to be approximately $44.4 billion in the aggregate in 2020. The 2020 IaaS market, which is comprised of compute and storage, was estimated to be $31.9 billion. The 2020 PaaS market, which includes database management systems, application platforms and other platform services, was estimated to be $12.5 billion. According to IDC, these combined IaaS and PaaS markets are expected to grow to $115.5 billion in 2024, representing a 27% compound annual growth rate.
We believe the individual developer, start-up and SMB markets are underserved, and we expect our massive addressable market to continue to grow rapidly beyond 2024. The key drivers of this growth come from the increasing technological innovation which drives cloud adoption combined with the growing number of developers and SMBs worldwide. According to SlashData, the global developer population is expected to more than double over the next 10 years to approximately 45 million by 2030. Furthermore, there are more than 32 million SMBs in the United States alone, according to the World Bank, and we estimate that there are at least three times that number, or 100 million SMBs, globally. We expect this number will continue to grow, with more than 14 million net new SMBs created globally each year.
Our Growth Strategies
We are driving significant growth by executing on the following key strategies:
Risk Factors Summary
Investing in our common stock involves a high degree of risk. The risks and uncertainties described in the section titled “Risk Factors” immediately following this summary may cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. These risks and uncertainties include, among others:
Corporate Information
We were incorporated in Delaware in 2012 under the name Digital Ocean, Inc. In 2016, as part of a restructuring, Digital Ocean, Inc. was converted into DigitalOcean, LLC, and DigitalOcean Holdings, Inc. was formed as the ultimate parent holding company. Our primary operations are performed globally through our wholly owned operating subsidiaries. Our principal executive offices are located at 101 6th Avenue, New York, New York 10013, and our telephone number is (646) 827-4366. Our website address is www.digitalocean.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
“DigitalOcean®”, “Droplet®” and our other registered and common law trade names, trademarks and service marks are the property of DigitalOcean. Other trade names, trademarks and service marks used in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal controls over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions for up to five years or until we are no longer an emerging growth company, whichever is earlier. In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.