To The Moon

DigitalOcean posted better-than-expected third quarter results, but the provider of cloud-based computing service to small- and medium-size businesses offered guidance for the fourth quarter that fell short of Wall Street estimates.

There recently have been signs of slowing growth in the cloud sector, with Microsoft (ticker: MSFT) reporting slightly disappointing resultsfor Azure in the September quarter, and Amazon (AMZN) postingsofter-than-expected revenuefor Amazon Web Services.

Shares of DigitalOcean (DOCN), which operates like a small-business version of AWS and Azure, were pressured by the earnings reports from the two cloud giants, raising the stakes for the company’s own results and guidance. And while the quarter came in strong, the outlook will raise new doubts about the resiliency of cloud demand amid a softening macro environment.

For the third quarter, DigitalOcean reported revenue of $152.1 million, up 37% from a year ago, including $4.1 million related to a recent acquisition. Backing out that deal, revenue was up 33%. The company had projected revenue of $145.5 million to $147 million.

DigitalOcean posted adjusted third-quarter profits of 38 cents a share, well above its guidance range of 22 to 23 cents; the Wall Street consensus forecast was 23 cents. The company said annual run-rate revenue was $640.6 million, up 41% from a year ago. DigitalOcean said average revenue per customer was $79.22, up 28% from a year ago.

For the fourth quarter, though, DigitalOcean is projecting revenue of $160 million to $162 million, falling shy of analysts’ forecast of $164 million, with adjusted profits of 18 to 19 cents a share, below consensus at 26 cents. The company sees non-GAAP operating margin in the quarter of 16%, which would be 10 percentage points below the third quarter level of 26%.

Based on third-quarter results and the fourth-quarter guidance, the company now sees full year revenue of $573 million to $575 million, above its prior range of $564 million to $568 million, with non-GAAP profits of 79 to 80 cents a share, ahead of the previous forecast of 74 to 75 cents.

DigitalOcean shares, which were off about 4% in Monday’s regular session, have declined about 63% this year.