Critical Review: DigitalOcean (NYSE:DOCN) & Cloudflare (NYSE:NET)

Cloudflare (NYSE:NET) and DigitalOcean (NYSE:DOCN) are both large-cap technology companies, but which is the superior stock? We will compare the two companies based on the strength of their earnings, valuation, analyst recommendations, risk, dividends, institutional ownership and profitability.

Insider and Institutional Ownership

82.7% of Cloudflare shares are held by institutional investors. Comparatively, 49.8% of DigitalOcean shares are held by institutional investors. 10.7% of Cloudflare shares are held by company insiders. Comparatively, 1.0% of DigitalOcean shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Volatility and Risk

Cloudflare has a beta of 1.66, indicating that its stock price is 66% more volatile than the S&P 500. Comparatively, DigitalOcean has a beta of 1.57, indicating that its stock price is 57% more volatile than the S&P 500.

Profitability

This table compares Cloudflare and DigitalOcean’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Cloudflare	-8.21%	-3.88%	-0.94%
DigitalOcean	23.26%	31.01%	5.76%

Analyst Ratings

This is a summary of current ratings and recommmendations for Cloudflare and DigitalOcean, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cloudflare	4	7	21	1	2.58
DigitalOcean	0	3	12	2	2.94

Cloudflare currently has a consensus price target of $321.85, suggesting a potential downside of 0.41%. DigitalOcean has a consensus price target of $152.81, suggesting a potential upside of 17.55%. Given DigitalOcean’s stronger consensus rating and higher probable upside, analysts plainly believe DigitalOcean is more favorable than Cloudflare.

Valuation and Earnings

This table compares Cloudflare and DigitalOcean”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cloudflare	$2.17 billion	52.69	-$102.27 million	($0.58)	-557.21
DigitalOcean	$901.43 million	15.05	$259.26 million	$2.19	59.36

DigitalOcean has lower revenue, but higher earnings than Cloudflare. Cloudflare is trading at a lower price-to-earnings ratio than DigitalOcean, indicating that it is currently the more affordable of the two stocks.

Summary

DigitalOcean beats Cloudflare on 9 of the 15 factors compared between the two stocks.

About Cloudflare

Cloudflare, Inc. operates as a cloud services provider that delivers a range of services to businesses worldwide. The company provides an integrated cloud-based security solution to secure a range of combination of platforms, including public cloud, private cloud, on-premise, software-as-a-service applications, and IoT devices; and website and application security products comprising web application firewall, bot management, distributed denial of service, API gateways, SSL/TLS encryption, script management, security center, and rate limiting products. It offers website and application performance solutions, including content delivery, load balancing, DNS, agro smart routing, video stream delivery, web optimization, cache reserve, cloudfare waiting room, and cloudfare data localization suite; SASE platform through cloudfare one that provides a cloud-based network-as-a-service; network services which deliver network connectivity, security, and performance, including magic WAN, magic transit, magic firewall, cloudflare network interconnect, and spectrum. In addition, the company provides zero trust services, such as cloudflare access, cloudflare gateway, remote browser isolation, cloud access security broker, cloud email security, and data loss prevention products that protects, inspects, and provides privilege rules to grant access to data and application. Further, it provides developer-based solutions consisting of cloudflare workers, R2 object storage, workers KV, durable objects, cloudfare pages, cloudfare stream, and cloudfare images; and consumer products comprising of 1.1.1.1, a DNS resolver, WARP, a virtual private network, and cloudfare registrar that secures registration and management of domain names. The company serves customers in the technology, healthcare, financial services, consumer and retail, industrial, and non-profit industries, as well as government. Cloudflare, Inc. was incorporated in 2009 and is headquartered in San Francisco, California.

About DigitalOcean

DigitalOcean Holdings, Inc., through its subsidiaries, operates a cloud computing platform in North America, Europe, Asia, and internationally. The company’s platform provides on-demand infrastructure and platform tools for developers, start-ups, and small and growing digital businesses. It also offers infrastructure-as-a-service (IaaS) solutions comprising compute and storage services, as well as networking projects, including Cloud Firewalls software, Managed Load Balancers software, and Virtual Private Cloud (VPC). The company also provides platform-as-a-service (PaaS) solutions, such as managed databases; managed Kubernetes and container registry; application platform to build, deploy, and scale applications; Functions, a serverless compute solution; and Uptime for real-time uptime and latency alerts, as well as software-as-a-service (SaaS), including managed hosting and DigitalOcean Marketplace, a platform where developers can find pre-configured applications and solutions. In addition, it offers artificial intelligence (AI)/machine learning (ML) applications comprising GPU virtual machines for scaling AI applications; Notebooks, a simple cloud workspace that runs on GPUs that provides a managed interactive development environment for exploring data, and training and building machine learning models; and Deployments for deploying their machine learning model as an API endpoint. The company’s customers include software engineers, researchers, data scientists, system administrators, students, and hobbyists. Its customers use its platform in various industry verticals and for a range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and AI/ML applications. DigitalOcean Holdings, Inc. was incorporated in 2012 and is headquartered in New York, New York.