Why DigitalOcean Stock Sank Today

Shares of cloud computing company DigitalOcean (NYSE: DOCN) sank on Monday after the company reported financial results for the third quarter of 2024. As of noon ET, DigitalOcean stock was down 10%. But it was a somewhat odd reaction considering the company beat Q3 expectations and raised its full-year financial guidance.

When a beat and raise isn't good enough

DigitalOcean's management had expected Q3 revenue of up to $197 million but in reality the business generated revenue of $198 million. Looking at profit metrics, the company outperformed in those areas as well. Moreover, management raised its full-year guidance for both the top and the bottom lines.

When a company beats and raises its guidance, the stock usually rises. But DigitalOcean stock is sinking today because investors are disappointed with its guidance for the upcoming fourth quarter.

DigitalOcean did better than expected in Q3 but the increase to the full-year guidance seemed light compared to its Q3 performance. This is how investors could be disappointed with Q4 guidance even though full-year guidance is now higher.

DigitalOcean is still adding customers and growing

There is only one quarter left in the year. Being disappointed with the guidance for next quarter when the guidance for the whole year is up seems like missing the forest for the trees to me.

According to management, 88% of DigitalOcean's revenue comes from customers that spend $50 or more monthly. The company added customers in these categories during Q3, which is a good sign. And several of its profit metrics improved as its revenue rose. These are all good long-term trends.

In short, I believe DigitalOcean is doing well right now despite today's lower stock price.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DigitalOcean. The Motley Fool has a disclosure policy.