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Which Is A Better Investment: DigitalOcean Holdings vs Cloudflare

In the sea of cloud computing, these two companies have caught our eye, but which is a better investment: DigitalOcean or Cloudflare?

DigitalOcean Holdings (NYSE: DOCN) and Cloudflare (NYSE: NET) are two companies in the expansive world that belong to cloud computing. But, while DigitalOcean is a cloud platform for developers, startups, and small and mid-sized businesses (SMBs), Cloudflare provides website security and content delivery services. 

With many cloud computing options out there we wondered which of these two exciting companies is the better investment: DigitalOcean Holdings or Cloudflare? 

DigitalOcean Holdings: the bull and bear case

DigitalOcean is a cloud computing platform company that is currently attracting some attention from investors as a potential buy right now.

It posted a very promising report for its Q3 earnings this year with revenue up 37% YoY to $111 million. Additionally, the company increased its total customers by 7% YoY, and the average revenue per user (ARPU) was just under $62, a 28% YoY increase. 

For Q4, DigitalOcean hopes to bring in revenue of $117 to $119 million; with the full-year outlook for revenue expectations now sitting between $426 to $428 million. 

On the flip side, DigitalOcean is not yet a profitable business. Its latest earnings per share (EPS) came in at -$0.02 and it is expected that the company will finish the year with a loss. However, expectations are that this cloud platform company will break even in 2022, and begin to make a profit moving forward. 

DigitalOcean may be a very exciting company in the world of cloud computing, but, it has to compete with huge players such as Amazon, Salesforce, and Google. But, with lower prices than major competitors, DigitalOcean should be able to build up its market share as it grows. 

Cloudflare: the bull and bear case

Cloudflare is a popular cloud computing stock with huge potential. It gives clients the web infrastructure and website security that facilitate content delivery networks and distributed denial of service (DDoS) mitigation.

Delving into its financials, the company posted a solid Q3 report with revenue coming in above expectations at $172 million, a 51% increase year-over-year (YoY). This was primarily driven by an increase in the annual average spend per customer which is up to $100,000 now, compared to $72,000 when the company went public two years ago.

The company also reached profitability ahead of schedule, which was originally forecast for mid-2022. 

Cloudflare has also launched Project Pangea, a project that aims to boost worldwide internet around the globe, Oahu, a program that allows migration from older legacy systems, and Early Hints, which increases internet speed by 30% for businesses.

However, Cloudflare faces heavy competition from the likes of Fastly, Amazon, and Microsoft. The company is certainly growing and as such its share price is also likely to keep on growing. However, with the pandemic still in a situation of uncertainty, if the market were to have another serious wobble again, Cloudflare would likely suffer. 

So, which should I buy?

Cloudflare is less risky, and the better investment of the two. With its continued large client growth and the potential for expansion into SMB’s from underdeveloped areas, Cloudflare has a very big runway for business growth in the long term. 

DigitalOcean Holdings is a bit riskier, although not by much. It is expected to break even by 2022, and it already has a good hold in the SMB market. It now needs to focus on establishing a larger customer base before it can diversify its selling strategy.

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