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Digitalocean @175M USD annual run rate
leapswitch
Patron Provider, Veteran
in General
Damn good work at those prices. Margin of 20%+
Comments
The non mobile version
https://www.businessinsider.nl/digitalocean-ceo-ben-uretsky-run-rate-profitability-battle-with-amazon-2017-10/?international=true&r=US
Oh...ARR. Charlie Munger and Warren Buffett hate that metric and for good reason.
A related accounting metric, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization") is sort of like saying "if we gave you this business for free and you never had to worry about refreshing gear, paying off debt, renewing software, paying off mortgages, repairing buildings, etc. how much would you make? Oh and you never have to pay taxes either."
ARR takes that very sketchy metric and makes it worse: "take your best quarter and multiply it by 4 and we'll assume the whole year will be like that". The $175m doesn't include interest and principal on the lines of credit mentioned in this article.
Now, DO is doing very well and congrats to them. I'm a customer and I have no doubt they're successful and profitable.
But ARR is silly dot-com finance nonsense.
This is a privately held company. Why are they boasting about their margins?
They are trying to get bought out.....
Interesting theory, but let me propose another: A healthy company that is on a positive trajectory is where you want your data.
I like companies that has a big chance of deadpooling - makes the business much more exciting.
So, Amazon?
They will sell like anyone else, it is hard to resist billions and then you think, well, with that money i can do another.
However, from what i know, the upgrading costs are going to be huge and the money may become scarce. I smell something wrong behind that article, maybe I am paranoid.
Well said. Personally I struggle to see the long term viability / sustainability of such a business model. Either the hardware will necessarily need to run longer than industry average (to get maximum return on what they already have), or prices will necessarily increase in order to fund upgrades.
Getting more funding is only a short term solution, and something has to change fundamentally. Maybe the volume at which they buy hardware gives them insane discounts? Maybe they have other revenue sources that a complimentary to their infra?
It will be interesting to see how this turns out.
But I guess like almost every other tech company that makes it big these days, get customers first, figure out how to make money later?
@randvegeta said what i was too lazy to write.
They'll finance any hardware upgrades. They can do it through venture debt, or traditional financing, with a bank syndicate. Or... they take the company public and use the funds raised there for "upgrades and expansion."
My opinion: DO goes public, and is not acquired.
IPO eventually. But in the meantime they provide a great service, outpacing others in terms of development and providing useful tools (Vultr/Linode/AN Other). Nothing bad to say about them since I started using the service in 2013.
That may change in years to come, it will be years though.
People hit on DO and their future but rave about the LET host that appeared a week ago...
Stay close to them, there are stock options coming your way...
This is another way of selling it, but there might be some issues in the books that will not escape the close scrutiny of an IPO even thought, at this time, anyone would buy anything within the technology sector, especially a long running (for the industry) company.
It can grow a lot more on VC and plain loans, growth will hide the problem of old gear as you always buy new and you can reuse the old for some even cheaper lines/testing etc, but when i see articles like that i always smell a rat, I have been writing similar stuff for a romanian financial paper and it didn't end well, but, OMG, it was the mid nineties, there were still ponzi schemes around, the sector was indeed the wild east of capitalism, i hope DO did benefit from almost free capital and managed to leverage a very good context for investment.
I think the original intention was for a buy, but at this point the sticker price will be in the billions which is outside the reach of pretty much any host focused venture group. AWS won't go after them, they'll just undercut them and not care. Same story for Microsoft.
I agree, an IPO sounds the most logical.
Francisco
No, I don't get that from DO. I think they're profitable and doing well. I just hate junk accounting.
Too bad companies don’t give you stocks anymore. Stupid contribution sh*t (1 to 1 stock matching).
Should DO go public, I’d probably pickup some stocks as growth = higher stock $ = profit!
Doesn't matter. Even when they did, they were widely down to penny stock by the time they vested, anyhow.
No I'm not a disgruntled dotcommer. Not at all.
I’m not stupid enough to invest in penny stocks. I’ll wait until they hit a few dollars before even trying.
..as an employee, you don't always have the choice of hopping on with a F500 while youth.
The value of a stock is kinda arbitrary, it depends on how many shares the company issues for how much capital they intend to build up. Naturally, it is better to value them in dollars instead of cents, but I think nothing stops anyone to issue 10k shares for 100 USD.
..much like the treasury department.
Personally speaking I don't think I'd ever invest in the hosting industry on a public exchange. I remember selling my EIG stock right away because I couldn't picture a scenario in which investors would understand or value it. It's just not a market that investors really get and, while I feel like I understand the market well, it's taking bets next to people who don't.
But then if I'm really, truly honest... I don't know how to succeed in stock markets at all anyway. I probably wouldn't invest in any market. I'd rather invest in my own things, like an email hosting thing that generates it's own income. Something that doesn't rely on something as fleeting as "market confidence."
(This post obviously implies nothing about confidence or lack of it in the company in question in this thread, but my lack of personal confidence in public exchanges to understand the hosting market)
Pretty anything. The herd mentality of investors, including some sizeable ones, is shocking. People invest in avionics companies, Tesla and the like, but they really dont know the market demands in transportation, for example, in countries like the US, not to mention elsewhere.
I can tell you they probably understand hosting better than most other things.
The hype train is real...
Be like @Jarland, don't be like Didi
http://www.dailymail.co.uk/news/article-4971242/Father-sells-family-owns-Bitcoin.html
In a competitive market, you either try to portray your numbers as small as possible or as big as possible.
When Benny Uretsky pitches his margins in the language of "far north of", he's pitching directly to potential buyers, whether it be larger conglomerates or the general shareholding public.
Sorry I didn't realize you were the subject matter expert and had already talked to him about it
(Not that I would have any insight, just like giving you a hard time)
I don't think that's the intent of the piece. If you look at who is writing it, it's an outreach to end-users. Not investors. The reason they're mentioning dollar figures is, right now "no one gets fired for choosing AWS/Google/Azure." You get fired when projects go bad using the 'little guy.' DO is positioning themselves as a cost effective competitor to industry giants. To do that effectively they need prove to the end-user they have a sustainable business, and will not get the person fired for choosing them.
I know very successful people the same way. "I won't invest in something I don't have any influence over."
With said, you might want to check out betterment.com. It never hurts to diversify your investments.
... and I hope one day DO does offer you a few options.
Talking margins and EBITDA isn't how you do outreach to end-users. Obviously most end-user managements don't have a background in sysadmin/IT but it's still a weird pitch.
It's like saying OnApp takes $10/node for SolusVM and runs a fat margin because it only invests $0.04/node for quality. That's what you tell potential investors, not your customers.
I think you mean the price of a stock is arbitrary to some extent. For $1m in capital, you could have a ten thousand shares at $100 or a thousand shares at $1000.
The value is a different matter and is unrelated to the price in a vacuum but rather considers price as it relates to earnings, the market, etc. There are overpriced 10-cent stocks and underpriced $100 stocks.
Right. That's the problem with the stock market - it's not just the rational basis of the stocks, it's also the other participants. And of course, not all of them are honest.
In fairness this article was written for a business mag.
Now choosing Solus on the other hand...