Why DigitalOcean (DOCN) Stock Is Nosediving

What Happened:

Shares of cloud computing provider DigitalOcean (NYSE: DOCN) fell 5.65% in the pre-market session after analyst James Fish of Piper Sandler lowered the stock's rating from Neutral (Hold) to Underweight (Sell) and maintained a price target of $35. The analyst cited multiple concerns negatively impacting the company, including high exposure to small and medium-sized businesses (SMBs), the usage model, and slowing revenues.

What is the market telling us:

DigitalOcean's shares are very volatile and over the last year have had 52 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was about one month ago, when the stock dropped 6.23% on the news that the company reported first-quarter results that narrowly beat analysts' revenue estimates. However, annual recurring revenue (ARR), earnings per share, and free cash flow missed, while gross margin experienced a significant decline. On a brighter note, revenue guidance for the next quarter came in roughly inline with analysts' estimates, and the full year revenue guidance came in above Consensus. Overall, it was a mixed quarter for the company, taking into account the high expectations established for fast-growing SaaS stocks.

DigitalOcean is up 54.3% since the beginning of the year, but at $39.39 per share it is still trading 25.2% below its 52-week high of $52.67 from August 2022. Investors who bought $1,000 worth of DigitalOcean's shares at the IPO in March 2021 would now be looking at an investment worth $927.41.

Is now the time to buy DigitalOcean? Access our full analysis of the earnings results here, it's free.