Home Blockchain Digital Ocean customers are moving away from blockchains • The Register

Digital Ocean customers are moving away from blockchains • The Register

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Digital Ocean customers are moving away from blockchains • The Register

Junior cloud Digital Ocean reported a marked drop in the number of customers using its IaaS services to run blockchains.

Speaking on the company’s second quarter 2022 earnings call, CEO Yancey Spruill warned investors that “the key growth drivers in our business are being somewhat offset by macroeconomic weakness, which has resulted in a reduction in the rate of expansion spend on our platform, particularly in Europe and Asia and primarily for customers operating in the blockchain vertical.”

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

The CEO warned of “a very uncertain outlook for blockchain, which in the second quarter was around 5% of revenue.”

“This 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 net new customers being attracted to the platform are performing well, new serverless products are performing well, pricing is performing well and being offset by macro weakness primarily in Europe and Asia” – and of course this blockchain slowdown.

The company posted 29% year-over-year revenue growth to $133.9 million in the second quarter. Non-GAAP net income was $23.4 million, but the company posted a loss of $7.4 million.

The number of customers spending more than $50 per month grew to 105,400, reflecting Digital Ocean’s target market of developers and small businesses. Average revenue per user reached $71.76, up 24% year-over-year from the $58.07 figure in Q2 2021.

If those numbers seem tiny – a single Azure or EC2 instance could cost the same for a few hours of operation – Digital Ocean doesn’t care. The company is positioning itself as a cloud with modest and predictable costs, unlike the complexity of its big rivals.

CFO Bill Sorensen said 85% of revenue comes from customers who spend $50 or more per month, and Digital Ocean is seeing spending from those customers increase.

“As we’ve added more managed services such as managed databases, managed Kubernetes, serverless, it expands the share of wallet we can capture from a customer compared to what we could three to five years ago. years, when we were just basic compute, basic network bandwidth, and basic storage,” he explained.

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

“As a cloud platform with customers in 185 countries, we are a valuable partner for data center operators,” he said. “To that end, we have worked with our colocation partners to tailor our pricing to the scope of our relationship and our future growth trajectory, which has led to rate savings.”

This vertical is under extreme pressure

“We have pursued a similar strategy with all of our vendors – not just the server manufacturers, but also all of the ancillary equipment – and the maintenance vendors for our extensive network. In each of these areas we have made savings and are seeing the opportunity for additional savings in the future.”

Sorensen added that Digital Ocean has bought more than $100 million worth of hardware in each of the past three years and is using that buying muscle to pressure the prices it pays for the kit.

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

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