Goldman Sachs Double Upgrades DigitalOcean (DOCN) to Buy

Goldman Sachs analyst Gabriela Borges upgraded DigitalOcean (NYSE: DOCN) from Sell to Buy with a price target of $33.00.

The analyst comments "

We upgrade DigitalOcean to Buy from Sell post significant stock underperformance (even with the +17% move on 11/3, DOCN is -7% YTD vs. Nasdaq +30%). We maintain our 12-month price target of $33 (39% upside), which is now based on 1) 85% fundamental value of $32 and 2) 15% M&A value of $38. Stock underperformance has likely been driven by a cyclical normalization in cloud optimization spending, which has been particularly acute in subsectors where DO has outsized exposure, as well as an overhang from the ongoing management transition. We believe the business is now approaching a cyclical trough, based on 1) indicators in the SMB ecosystem and management commentary on the 3Q23 earnings call; 2) contributions from newer initiatives such as the recent acquisition of Paperspace and continued ramping of Cloudways. As macro stabilizes, we believe the structural improvements that DO has made to its mix shift and cost structure will become more obvious, driving better revenue growth and continued FCF margin expansion. While we expect the ongoing management transition to remain an overhang until a new CEO is announced, we do not expect to see a material shift in DO's strategy and we already incorporate a moderate investment cycle in our 2024 forecast. Since being added to the America's Sell list on 7/13/2022, DOCN is -36% vs. the Nasdaq +20%."

For an analyst ratings summary and ratings history on DigitalOcean click here. For more ratings news on DigitalOcean click here.

Shares of DigitalOcean closed at $23.85 yesterday.

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