F2Q Preview: pre-announce and convert action set up a likely F26 guide raise

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DigitalOcean

F2Q Preview: pre-announce and convert

action set up a likely F26 guide raise

Reiterate Rating: BUY | PO: 200.00 USD | Price: 120.23 USD

F2Q pre-announce supports higher F26 guide

DOCN reports F2Q26 on 8/4 and pre-announced results earlier this month with revs

expected to accelerate to ~29% y/y, RPO to exceed $800mn, and EBITDA margin & EPS

“at or above the high end “of prior guide (37-38% & $0.20 to $0.23 respectively). We

see the RPO step-up as the key incremental data point, with multiple nine-figure annual

commitments extending visibility and reinforcing the durability of demand. The focus for

F2Q likely remains on capacity timing and implied exit-rate growth exiting C26 (which

DOCN noted will be higher than the prior guide of approaching 30%). Based on historical

expectations and FY guidance, we would expect DOCN to guide F3Q revenue to $300$302mn, +32% y/y, EBITDA margin to 39-40%, and EPS to $0.27-$0.30. For F26

guidance, we anticipate DOCN guides revenue to 27-29% y/y growth, with EBITDA

margin of 38-39%, EPS of $1.20-$1.30, and a F4Q exit rate of 34-35%. Reiterate Buy on

upside from agentic AI, ARR growth, and expanding GPU capacity driving incremental

top-line and FCF growth.

Announced transaction supports add’t capacity expansion

DOCN recently announced the repurchase of up to $500mn of 2030 converts

(approximately $472mn has been completed), funded through a concurrent registered

direct offering to participating noteholders. We expect the transaction to reduce net

leverage to with minimal impact to cash or dilution. We view this as incrementally

positive for DOCN’s ability to secure additional capacity while remaining below the 4.0x

leverage target.

Incremental 20MW capacity supports ARR/MW upside

DOCN also announced an incremental 20MW of committed data center capacity

expected to come online in late 2027 and early 2028, bringing total committed capacity

to ~155MW. We see the additional capacity as an important signal that DOCN is

continuing to convert customer demand into supply and gives DOCN more room to

optimize customer mix and contract structure driving higher ARR/MW.

Adjusting estimates, PO remains $200

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