DOCN
DOCN
Hold 2026-03-18
Model
DCF
Price at Report
$84.92
Base IV
$61.40
Bear IV
$21.84
Bull IV
$128.59
Entry Zone: 23-56 · Sell Above: 109
Bore Family Office
Valuation Report — DigitalOcean Holdings (DOCN) • March 18, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 10.75% • Current Price: $84.92
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
DigitalOcean Holdings (NYSE: DOCN) is a cloud infrastructure provider purpose-built for small-and-medium businesses (SMBs), startups, and individual developers. Founded in 2011 and IPO'd in March 2021, the company serves ~600,000+ customers across 185+ countries with a simplified, developer-friendly platform that competes against hyperscaler complexity (AWS, Azure, GCP) by offering transparent pricing and an intuitive UX.
In 2023, DOCN acquired Paperspace to enter the AI/ML infrastructure market, launching GPU Droplets that give SMBs access to NVIDIA GPU compute without hyperscaler contracts. FY2025 revenue grew 15.5% to $901M, with operating margins expanding from 11.7% to 17.4% and FCF margins reaching 18.8%. The company has been aggressively repurchasing shares — buying back ~$1.7B since IPO, driving equity negative — signaling management confidence in the business trajectory. Revenue is expected to re-accelerate to 24–30% growth in FY2026–27 as AI/ML workloads ramp.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Infrastructure (IaaS) | $505M | 56% | +10.0% | — | Droplets (VMs), Spaces (object storage), VPC networking, block storage |
| Platform (PaaS) | $270M | 30% | +18.0% | — | App Platform, Managed Databases (Postgres, MySQL, Redis, MongoDB), Managed Kubernetes |
| AI/ML & GPU | $90M | 10% | +55.0% | — | GPU Droplets (NVIDIA H100/A100), Paperspace Gradient, ML model hosting |
| Other (Marketplace/Add-ons) | $36M | 4% | +8.0% | — | Marketplace 1-Click apps, monitoring, premium support |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 8.0% | 8–12% adequate |
| FCF Margin | 18.8% | ≥10% strong |
| Debt / EBITDA | 5.8x | >4x elevated |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Expanding | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $429 | $576 | $693 | $781 | $901 |
| EBITDA ($M) | $77 | $77 | $130 | $221 | $294 |
| Operating Income ($M) | $-11 | $-26 | $12 | $91 | $157 |
| Net Income ($M) | $-20 | $-28 | $19 | $84 | $259 |
| EPS (diluted) | $-0.21 | $-0.28 | $0.20 | $0.89 | $2.52 |
| Free Cash Flow ($M) | $30 | $80 | $110 | $96 | $170 |
| Annual DPS | $0.000 | $0.000 | $0.000 | $0.000 | $0.000 |
| Total Debt ($M) | $1,463 | $1,635 | $1,650 | $1,696 | $1,701 |
| Rev YoY Growth | — | +34.3% | +20.3% | +12.7% | +15.4% |
| Gross Margin | 60.1% | 63.2% | 57.4% | 59.7% | 59.9% |
| EBITDA Margin | 17.9% | 13.4% | 18.8% | 28.3% | 32.6% |
| Operating Margin | -2.6% | -4.5% | 1.7% | 11.7% | 17.4% |
| Net Margin | -4.7% | -4.9% | 2.7% | 10.8% | 28.7% |
📈 DCF Scenarios
$22
🔴 Bear
$61
📊 Base
$129
🚀 Bull
$84.92
Current Price
$67
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 15.0% | 8.0% | 2.2% | 10.75% | $22 | ▼74.3% |
| 📊 Base | 25.0% | 12.0% | 2.8% | 10.75% | $61 | ▼27.7% |
| 🚀 Bull | 35.0% | 18.0% | 3.2% | 10.75% | $129 | ▲51.4% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 15.0% | Stage 2: 8.0% | Terminal: 2.2%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.18B | $0.16B | $0.16B |
| Year 2 ✦ | Stage 1 | $0.20B | $0.17B | $0.33B |
| Year 3 ✦ | Stage 1 | $0.23B | $0.17B | $0.50B |
| Year 4 ✦ | Stage 1 | $0.26B | $0.17B | $0.68B |
| Year 5 ✦ | Stage 1 | $0.28B | $0.17B | $0.85B |
| Year 6 | Stage 2 | $0.31B | $0.17B | $1.01B |
| Year 7 | Stage 2 | $0.33B | $0.16B | $1.18B |
| Year 8 | Stage 2 | $0.36B | $0.16B | $1.34B |
| Year 9 | Stage 2 | $0.39B | $0.15B | $1.49B |
| Year 10 | Stage 2 | $0.42B | $0.15B | $1.64B |
| Terminal | — | TV=$5.0B | PV(TV)=$1.8B (53% of EV) | EV=$3.5B |
| Intrinsic Value | — | — | EV $3.5B − Net Debt → Equity / Shares | $22 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (10.75%) to get its present value. After Year 10, FCF grows at the terminal rate (2.2%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $5.0B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $1.8B). Enterprise Value = PV of FCFs ($1.6B) + PV of TV ($1.8B) = $3.5B. Subtracting net debt gives equity value of $2.0B, divided by shares outstanding = $22 per share.
Base Scenario
Stage 1: 25.0% | Stage 2: 12.0% | Terminal: 2.8%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.21B | $0.19B | $0.19B |
| Year 2 ✦ | Stage 1 | $0.29B | $0.24B | $0.43B |
| Year 3 ✦ | Stage 1 | $0.36B | $0.27B | $0.70B |
| Year 4 ✦ | Stage 1 | $0.44B | $0.29B | $0.99B |
| Year 5 ✦ | Stage 1 | $0.52B | $0.31B | $1.30B |
| Year 6 | Stage 2 | $0.58B | $0.31B | $1.61B |
| Year 7 | Stage 2 | $0.65B | $0.32B | $1.93B |
| Year 8 | Stage 2 | $0.72B | $0.32B | $2.25B |
| Year 9 | Stage 2 | $0.81B | $0.32B | $2.57B |
| Year 10 | Stage 2 | $0.91B | $0.33B | $2.90B |
| Terminal | — | TV=$11.7B | PV(TV)=$4.2B (59% of EV) | EV=$7.1B |
| Intrinsic Value | — | — | EV $7.1B − Net Debt → Equity / Shares | $61 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (10.75%) to get its present value. After Year 10, FCF grows at the terminal rate (2.8%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $11.7B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $4.2B). Enterprise Value = PV of FCFs ($2.9B) + PV of TV ($4.2B) = $7.1B. Subtracting net debt gives equity value of $5.6B, divided by shares outstanding = $61 per share.
✦ Year-by-year analyst consensus FCF estimates (Base scenario)
Bull Scenario
Stage 1: 35.0% | Stage 2: 18.0% | Terminal: 3.2%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.24B | $0.22B | $0.22B |
| Year 2 ✦ | Stage 1 | $0.35B | $0.28B | $0.50B |
| Year 3 ✦ | Stage 1 | $0.48B | $0.36B | $0.86B |
| Year 4 ✦ | Stage 1 | $0.62B | $0.41B | $1.27B |
| Year 5 ✦ | Stage 1 | $0.77B | $0.46B | $1.74B |
| Year 6 | Stage 2 | $0.91B | $0.49B | $2.23B |
| Year 7 | Stage 2 | $1.07B | $0.52B | $2.75B |
| Year 8 | Stage 2 | $1.27B | $0.56B | $3.31B |
| Year 9 | Stage 2 | $1.49B | $0.60B | $3.91B |
| Year 10 | Stage 2 | $1.76B | $0.63B | $4.54B |
| Terminal | — | TV=$24.3B | PV(TV)=$8.7B (66% of EV) | EV=$13.3B |
| Intrinsic Value | — | — | EV $13.3B − Net Debt → Equity / Shares | $129 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (10.75%) to get its present value. After Year 10, FCF grows at the terminal rate (3.2%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $24.3B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $8.7B). Enterprise Value = PV of FCFs ($4.5B) + PV of TV ($8.7B) = $13.3B. Subtracting net debt gives equity value of $11.8B, divided by shares outstanding = $129 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.7% | $80 | $85 | $90 | $97 | $105 |
| 9.2% | $72 | $76 | $81 | $86 | $93 |
| 9.8% | $65 | $68 | $72 | $76 | $81 |
| 10.2% | $60 | $63 | $66 | $70 | $74 |
| 10.7% | $55 | $57 | $60 | $63 | $67 |
| 11.3% | $50 | $52 | $54 | $57 | $60 |
| 11.7% | $46 | $48 | $50 | $53 | $55 |
| 12.2% | $43 | $44 | $46 | $48 | $50 |
| 12.8% | $39 | $40 | $42 | $43 | $45 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | P/E (Fwd) | EV/Revenue | EV/EBITDA | P/FCF | Rev Growth | Note |
|---|---|---|---|---|---|---|
| DOCN (current) | 79x | 8.7x | 27x | 46x | +15.5% | SMB cloud; AI/ML optionality |
| DOCN (FY2024 avg) | 45x | 5.2x | 18x | 32x | — | Pre-AI rally multiples |
| NET (Cloudflare) | 105x | 19x | 95x | 55x | +27% | Edge cloud; more enterprise-focused |
| GDDY (GoDaddy) | 23x | 5.0x | 18x | 24x | +8% | SMB web services; mature growth |
| AKAM (Akamai) | 18x | 3.5x | 12x | 14x | +5% | CDN/security; low growth |
| FSLY (Fastly) | N/M | 3.0x | N/M | N/M | +8% | Edge compute; still unprofitable |
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2023 | $0.20 | — | — | — | Actual |
| 2024 | $0.89 | — | — | — | Actual |
| 2025 | $2.52 | — | — | — | Actual |
| 2026 | $0.86 | $1.08 | $2.02 | 16 | Estimate |
| 2027 | $1.08 | $1.77 | $2.71 | 16 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2023 | $0.7B | — | — | — | Actual |
| 2024 | $0.8B | — | — | — | Actual |
| 2025 | $0.9B | — | — | — | Actual |
| 2026 | $1.1B | $1.1B | $1.2B | 16 | Estimate |
| 2027 | $1.4B | $1.5B | $1.5B | 16 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $66.54 | Range $36–$100
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Timothy Horan | Oppenheimer | Buy | $100 | +17.8% |
| Gabriela Borges | Goldman Sachs | Strong Buy | $78 | -8.1% |
| Raimo Lenschow | Barclays | Buy | $69 | -18.7% |
| Radi Sultan | UBS | Hold | $68 | -19.9% |
| RBC Capital | Buy | $65 | -23.5% | |
| Piper Sandler | Hold | $60 | -29.3% | |
| Morgan Stanley | Hold | $55 | -35.2% | |
| Needham | Buy | $50 | -41.1% |
(d) Earnings Surprise History
| Quarter | EPS Act vs Est | EPS Beat/Miss | Rev Act vs Est | Rev Beat/Miss | Guidance |
|---|---|---|---|---|---|
| Q4 2025 | $0.24 vs $0.38 | $-0.14 ❌ | $0.2B vs $0.2B | +$0.0B ✅ | Raised FY2026 outlook |
| Q3 2025 | $1.51 vs $0.37 | +$1.14 ✅ | $0.2B vs $0.2B | +$0.0B ✅ | Maintained |
| Q2 2025 | $0.39 vs $0.35 | +$0.04 ✅ | $0.2B vs $0.2B | +$0.0B ✅ | Maintained |
| Q1 2025 | $0.39 vs $0.34 | +$0.05 ✅ | $0.2B vs $0.2B | +$0.0B ✅ | Maintained |
(e) Confidence Band Commentary
DOCN is covered by 13–16 analysts — moderate coverage for a $7.8B mid-cap. The analyst PT range is extremely wide ($36–$100) reflecting deep disagreement on the durability of the AI/ML platform thesis. The consensus average of $66.54 is 22% BELOW the current price — the stock has run well ahead of the Street. Only Oppenheimer ($100, Mar 18 upgrade) has a PT above the current price. FY2025 EPS of $2.52 was inflated by a one-time gain in Q3 ($1.51 EPS in a single quarter vs ~$0.35 normalized); FY2026 consensus EPS of $1.08 reflects normalization. Revenue estimates are more reliable — consensus $1,116M implies 24% growth, consistent with the AI-driven re-acceleration thesis. The wide EPS range ($0.86–$2.02) for FY2026 reflects uncertainty around SBC expense, convertible debt treatment, and one-time items.
💡 Investment Thesis
- SMB Cloud Moat: DigitalOcean owns the "developer-first cloud" niche with transparent, predictable pricing that hyperscalers structurally cannot match. SMBs avoid AWS/Azure complexity tax — DOCN's Net Revenue Retention (NRR) has stabilized at ~97–100%, and the company is expanding ARPU by upselling managed services and AI tools.
- AI/ML Platform Optionality: GPU Droplets and Paperspace give SMBs access to NVIDIA GPU compute at scale. This is a largely uncontested market — hyperscalers focus on enterprise AI contracts while SMBs/startups need affordable, on-demand GPU access. If AI workloads drive even 15–20% of revenue by FY2028, it justifies a material re-rating.
- FCF Margin Expansion: Operating margins went from -4.5% (FY2022) to 17.4% (FY2025). Capex intensity is declining as the core data center footprint matures. Management targets 25%+ FCF margins at scale — the trajectory supports this.
- Aggressive Buybacks: ~$1.7B in buybacks since IPO on a $7.8B market cap. Share count has declined from ~118M to ~92M (basic). With growing FCF and no dividend, buybacks are the primary capital return — powerful for per-share value compounding.
- Key Risks: (1) Hyperscaler down-market push — AWS Lightsail and GCP free tiers could erode DOCN's value proposition. (2) $1.7B in convertible debt with $325M maturing in 2026 — refinancing risk if rates stay elevated. (3) Customer concentration in cost-sensitive SMB segment — vulnerable to recession. (4) Stock at $85 is 28% above analyst consensus PT of $66.54 — significant downside risk if growth disappoints.
⚖️ DCF Verdict: Hold — DigitalOcean Holdings (DOCN)
Current price: $84.92 | Analyst Avg PT: $66.54
$22
🔴 Bear
$61
📊 Base
$129
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$56 | Begin position |
| Tier 2 — Add | ≤$42 | Add on weakness |
| Tier 3 — Full | ≤$23 | Full allocation |
| Sell Alert | ≥$109 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
DOCN is a Hold at $85. The stock has rallied 234% from its April 2025 low of $25.45 and now trades 28% above the analyst consensus price target of $66.54. Our Base DCF of ~$65 aligns with the Street consensus and implies ~24% downside from current levels. While the AI/ML platform creates genuine optionality (Bull case $130+), the current price already embeds substantial growth optimism.
Joseph holds 303 shares at $80.50 avg cost — a small unrealized gain of ~6%. Recommendation: Hold existing position; do not add at current levels. The stock is priced for the Bull scenario while our Base case points to $65. Consider trimming above $95 (approaching Oppenheimer's $100 PT, which is the only target above current price). Accumulate below $55 (near Bear/Base crossover). Becomes a Reduce if revenue growth decelerates below 15% or FCF margins contract.
📂 Current Position Summary
| Metric | Value |
|---|---|
| Shares Held | 303 |
| Average Cost Basis | $80.50 |
| Current Market Value | $25,731 |
| Unrealized P&L | $+1,339 (+5.5%) |
| Annual DPS | — (not provided) |
| Annual Dividend Income | — (DPS missing) |
| Current Yield (at price) | — |
| Yield on Cost | — |
| vs Target (~$200K) | $25,731 / $200,000 (13%) |
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| FCF Base | Used FY2025 reported FCF of $170M (OCF $310M − CapEx $140M). FCF margin of 18.8% represents the current run rate after significant capex investment in FY2024 ($187M). FY2024 FCF dipped to $96M due to elevated data center buildout; FY2025 is more representative of the steady-state capital intensity. |
| WACC | Beta moderated to 1.50 from reported 1.67–1.76. Justification: DOCN has transitioned from unprofitable (FY2022) to 17.4% operating margins (FY2025) and 18.8% FCF margins. The earnings profile now more closely resembles a maturing SaaS company than an early-stage startup. Kd = 3.0% pre-tax (blended convertible rate + refinancing premium for 2026 maturity). WACC = 10.75%. |
| FCF Estimates (Years 1–5) | Derived from analyst consensus revenue ($1,116M FY2026, $1,451M FY2027) × scenario-specific FCF margin assumptions. Base margins expand from 19% → 23% over 5 years as capex intensity declines and scale benefits accrue. Bear uses low-end revenue × compressed 16–17% margins (hyperscaler competition). Bull uses high-end revenue × expanding 21–27% margins (AI platform operating leverage). Years 3–5 extrapolated from street revenue CAGR × margin trajectory. |
| Net Debt & Convertibles | Net debt $1,447M dominated by two convertible note tranches: $325M 0% due 2026 (current portion — refinancing risk) and $971M 0.125% due 2028. If converted in-the-money, these reduce debt but dilute shares. Our model uses basic shares (92M) and treats convertibles as debt — this is conservative (conversion would improve IV by reducing net debt but diluting per-share value). |
| Price vs. Consensus | At $85, DOCN trades 28% above the $66.54 analyst consensus PT. Only Oppenheimer ($100, raised Mar 18) has a target above the current price. The stock has rallied 234% from its Apr 2025 low. Our Base IV aligns with consensus — the market is pricing in the Bull case. Recommendation: Hold, do not add. |
| FY2025 EPS Normalization | Reported FY2025 GAAP EPS of $2.52 included a one-time gain in Q3 2025 ($158M net income in a single quarter vs ~$30M normalized). Normalized FY2025 EPS is closer to $1.40–1.50. FY2026 consensus EPS of $1.08 reflects this normalization plus higher SBC and convertible interest expense. FCF is a cleaner metric for DOCN than earnings — the DCF model is the right framework. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.