DigitalOcean Stock Plummets 11%: What’s Dragging the Cloud Giant Down?

Another brutal day for tech stocks—DigitalOcean tanks nearly 11% as investors flee. Cloud sector jitters or company-specific woes? Let’s break it down.

Wall Street’s love affair with tech hits a snag. While crypto and AI stocks moon, traditional cloud plays like DigitalOcean get left in the dust. Analyst whispers point to margin pressures and slowing SMB adoption.

Funny how a ‘cloud’ company can’t seem to float when the market gets choppy. Maybe they should’ve tokenized their infrastructure—at least then the volatility would’ve made sense.

An important note about notes

Before market open, DigitalOcean announced that it aims to float a $500 million issue of convertible senior notes. These securities mature on Aug. 15, 2030, if not converted, and the initial purchasers will have an option to collectively buy another $75 million aggregate principal of the notes within a period of 13 days from issue.

Image source: Getty Images.

As convertible securities, the notes will accrue interest that is to be paid semiannually, although the company did not specify a rate. If converted, it will swap shares of its common stock or cash, as applicable. And after Aug. 15, 2028, the notes will be redeemable, fully or partly, at the company's option at any time up to 40 trading days before that 2030 maturity date.

In the press release trumpeting the issue, the company said it intends to use its share of the proceeds -- combined with as much as $500 million from a credit facility -- to repurchase existing convertible senior notes due to mature in 2026, and for transactions related to them.

Financial impact incoming

No matter if all, some, or none of the notes are converted into shares, this issue will affect DigitalOcean's financials. If unconverted, the notes will add considerably to a debt pile that already approached $1.8 billion as of the end of June. If converted, they WOULD at least be moderately dilutive to the outstanding share count, which currently stands at slightly over 91 million.