Cloud firm DigitalOcean lays off 11% of its workforce

Cloud vendor DigitalOcean will cut 11 percent of its employees, announcing the layoffs the same day it reported earnings for the fourth quarter of its fiscal year and about a month after acquiring backup and recovery services provider SnapShooter.

The New York-based vendor, led by CEO Yancey Spruill, has already informed about 100 employees about their layoffs and will let go about 100 more, according to The Register. About half of the workforce is outside the United States. Overseas sales make up about 70 percent of the vendor’s revenue.

Meanwhile, the company announced $163 million in revenue for the quarter ended Dec. 31, an increase year over year of 36 percent. But gross profit of $99.6 million was down 200 basis points year over year and DigitalOcean revealed a loss from operations of about $15 million.

DigitalOcean joins a slate of other tech vendors to announce workforce reductions after a digital tools boom during the height of the pandemic. Moderated customer demand, less of a need for pandemic-era employee counts, growing inflation in the United States and the potential for a recession have been among the reasons for the layoffs.

Other vendors who have announced layoffs in recent days include Zoom, Dell Technologies, Okta, Splunk, Secureworks, Microsoft, GitLab, Twilio and Rigetti Computing.

DigitalOcean Q4 Results
In the announcement of DigitalOcean’s fourth quarter results, Spruill said that the restructuring should help the company reach 20 percent free cash flow margins or better.

The company’s board of directors approved the restructuring plan on Jan. 27. The plan includes eliminating positions and shifting positions across the globe over the next several months.

DigitalOcean expects to spend $25 million to $27 million on the plan, according to the company. It will save DigitalOcean an annualized run rate of $60 million. Most of the spending will be done by June 30.

For the fourth quarter of its fiscal year, DigitalOcean saw annual run rate revenue (ARR) of $658.8 million, up 34 percent year over year. Average revenue per customer (ARPU) was $80.27, up 22 percent year over year. The company ended the year with 677,000 customers.

The company had $864 million in cash and cash equivalents at the end of 2022.

For the fiscal year, DigitalOcean brought in $576 million in revenue, up 34 percent year over year. Loss from operations was $26 million.

The layoffs also come about a month after an acquisition, the purchase price of which was undisclosed. On Jan. 11, DigitalOcean announced the acquisition of SnapShooter to add more capabilities around cloud backups.

For the first quarter of 2023, DigitalOcean expects revenue between $163 million and $165 million with an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin of about 31 percent.

For the full 2023 year, DigitalOcean expects revenue of $700 million to $720 million with an adjusted EBITDA margin of about 38 percent.