Digital Ocean customers pull back from blockchains • The Register

Junior cloud Digital Ocean has reported a marked decline in customers using IaaS services to run blockchains.

Speaking on the company’s Q2 2022 earnings call, CEO Yancey Spruill warned investors that “key growth drivers in our business are somewhat offset by macro weakness, which has resulted in reduced expansion costs on our platform, particularly in Europe and Asia and mainly for customers operating in the blockchain vertical.”

Spruill added that the decline in blockchain was not related to cryptocurrency, but other uses of the technology. He offered no explanation as to why customers had cooled on the distributed ledger technology.

The CEO warned of “a very uncertain outlook for blockchain, which in Q2 represented about 5 percent of revenue.”

“That vertical is under extreme pressure,” Spruill observed, and therefore represents a weak spot for Digital Ocean.

The company sees strength in its other products. Spruill said he sees “tailwinds of new net customers attracted to the platform working well, new product with serverless working well, pricing working well, and being offset by weakness in the macro mainly in Europe and Asia” — and of course the blockchain slowdown.

The company reported year-over-year revenue growth of 29 percent, with $133.9 million coming through the door in Q2. Non-GAAP net income was $23.4 million, but the company reported a loss of $7.4 million.

Customers spending more than $50 a month rose to 105,400 – a reflection of Digital Ocean’s target market of developers and small businesses. Average revenue per user reached $71.76, up 24 percent year-over-year from Q2 2021’s figure of $58.07.

If these numbers seem small – a single Azure or EC2 instance can cost the same for a few hours of operation – Digital Ocean doesn’t mind. The company positions itself as a cloud with modest and predictable costs, in contrast to the complexity of its larger rivals.

CFO Bill Sorensen said 85 percent of its revenue comes from customers who spend $50 or more a month, and that Digital Ocean is seeing its customers’ spending grow.

“As we’ve added more managed services like managed databases, managed Kubernetes, serverless, it expands the wallet share we can get from a customer than we could three to five years ago when we were just basic computing, basic network bandwidth and basic storage,” he explained.

Sorensen also revealed that the company has used its significant global footprint to negotiate better deals from data center operators.

“As a cloud platform with customers in 185 countries, we are a valued partner for data center operators,” he said. “To that end, we have worked with our co-location partners to match our rates to the scope of our relationship and our future growth trajectory, which has resulted in rate savings.”

That vertical is under extreme pressure

“We have followed a similar strategy with all of our suppliers – not only to server manufacturers, but also all peripherals – and the maintenance suppliers for our vast network. In each of these areas, we have achieved savings and we see the opportunity for further savings in the future.”

Sorensen added that Digital Ocean has bought over $100 million worth of hardware in each of the past three years, and is using that purchasing muscle to further push the prices it pays for the kit.

Executives forecast 30 percent revenue growth for the third quarter, despite ongoing challenges such as the cooling global economy, the impact of Russia’s illegal invasion of Ukraine and the blockchain disruption. ®