DigitalOcean (DOCN) Stock: Why Its Trending Today

By Amit Chowdhry ● Jul 11, 2022
  • The DigitalOcean (NYSE: DOCN) stock is trending today. This is why.

The DigitalOcean (NYSE: DOCN) stock is trending today as it fell by over 14% during intraday trading. Investors are responding negatively to a bearish research report.

Morgan Stanley analyst Josh Baer downgraded the company stock from an “Equal Weight” rating to an “Underweight” rating. And the price target was reduced from $61 to $45.

Baer noted that the company’s recent outperformance is reflecting the benefit from pricing increases, but it fails to account for the mounting risks associated with exposures to individual developers, startups, SMBs, tech companies, Europe/Asia, the Consumption model and implied (second half of 2022) strength to reach guidance.

“With growing evidence of a slowdown in the software spend environment (see 2Q22 CIO Survey), we are narrowing our focus in our coverage universe and positioning more cautious on companies operating consumption pricing models, and see DigitalOcean with higher relative risk given exposures,” said Baer in the research note. “We move our rating from Equal-weight to Underweight based on the combination of these risks and we reduce our price target from $61 to $45. With shares trading at about 7.6x EV/2023 Sales or 0.24x on a growth adjusted basis vs. SMid software peer median at about 4.8x EV/2023 Sales or 0.23x on a growth adjusted basis, the stock looks somewhat overvalued, in our view, given DigitalOcean’s risks and exposures.”

Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.