$DOCN · DigitalOcean Holdings, Inc.
DigitalOcean filed its Q3 FY2026 10-Q, reporting revenue of $321.2M (+39.9% YoY) with adjusted EPS of $0.45. GAAP net loss was $(42.6M), swinging from a $158.4M profit in Q3 2025, primarily due to a $57.1M induced conversion expense on 2030 Convertible Notes. Gross margin fell to 50.1% from 60% as cost of revenue nearly doubled. The balance sheet expanded dramatically to $3.74B in total assets, driven by property and equipment growth to $1.41B and operating lease assets of $705M.
- Revenue grew 39.9% YoY to $321.2M in Q3 FY2026, up from $229.6M a year ago.
- GAAP net loss was $(42.6M) vs. $158.4M profit in Q3 2025, driven by a $57.1M induced conversion expense.
- Gross margin contracted to 50.1% from 60% YoY as cost of revenue nearly doubled to $160.1M.
- Operating income fell 26.5% to $33.0M; stock-based compensation surged 82% to $36.0M.
- Total assets ballooned to $3.74B from $1.84B at year-end, driven by property/equipment and lease assets.
Extended-hours trading shows DOCN at $88.60, down 1.33% from the regular close of $89.79. The GAAP loss and sharp gross margin compression likely outweigh the strong revenue growth in after-hours sentiment.
DigitalOcean's 40% revenue growth is exceptional for cloud infrastructure, but the simultaneous margin collapse and GAAP loss raise questions about the cost of its AI pivot.
DigitalOcean's 40% revenue growth far outpaces traditional cloud peers, reflecting its pivot toward AI/agentic inference workloads. However, the margin compression mirrors capex-heavy infrastructure buildouts seen across hyperscalers investing in GPU capacity.
Cost of revenue nearly doubled YoY to $160.1M, compressing gross margin from 60% to 50.1%. The $57.1M induced conversion charge on 2030 Convertible Notes and $57.1M in total debt-related costs signal balance-sheet restructuring risk. Interest expense tripled to $16.4M from $5.0M.