Public cloud player DigitalOcean is raising some eyebrows in the tech space with its upcoming initial public offering. The company priced its IPO between $44 and $47 per share, which would give it a valuation of between $4.72 billion and $5.07 billion, including shares designated for its underwriters.
That’s a significant market capitalization for a company that so far is not profitable. In 2020 DigitalOcean lost almost $44 million compared to a loss of $40 million in 2019.
Unlike the top three public cloud providers —Amazon Web Services, Google Cloud and Microsoft Azure—DigitalOcean caters to developers, startups and small and medium-sized businesses. In its S-1 filing with the SEC, the company said that it has more than 570,000 individual and small business customers using its platform and that it believes that its focus on simplicity, community, open source, and customer support, distinguishes it from its larger competitors.
The company also believes that there is a huge upside to catering to SMBs and developers. It noted in its S1 that SlashData estimates the developer market alone will grow to 45 million by 2030, up from 19 million in 2019. In addition, it believes that the SMB market globally will grow at a rate of 14 million net new SMBs every year and that a significant proportion of those companies will be looking for a simple and reliable cloud options.
Simplicity is key
DigitalOcean intentionally keeps its product portfolio on the small side, with just a handful of offerings that include customizable Linux-based virtual machines, data storage and networking tools and three databases. The company says that the simplicity of its offerings is compelling to developers and SMBs because the products offered by the larger cloud players are often too complex for small businesses to navigate.
DigitalOcean says it attracts 5 million monthly unique visitors to its websites and it offers a library of 6,000 tutorials that are intended to help customers use their products. The company also says it offers an open-source platform and its participation in the open source community makes it attractive to developers and SMBs.
The company’s customers are spread over 185 countries and only one-third of its revenue comes from the U.S. By comparison, AWS reported that 68% of its revenue comes from the U.S. market.
DigitalCloud says that its average revenue per customer was $47.78 in 2020, this is up from $35.97 in 2018.