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DigitalOcean to Acquire Cloudways for $350 Million

DigitalOcean LogoDigitalOcean revealed today that they’re tired of Cloudways fronting their panel, so they’re going to buy them for $350 million.

Cloudways has a fantastic business model: they buy a VM for $6, put their own panel in front of it, and sell the VM for $12.  This is akin to opening Joe’s Hamburger Stand next door to a McDonald’s.  When someone orders a cheeseburger, you charge them $5 and then walk over to McDonald’s and buy it for $2.50.  Cloudways doesn’t even change the wrapper.

Someone must like the experience because they’re apparently selling enough of it to justify $350 million.  And DO is paying all cash.

We don’t know what Cloudways is bringing to the table financially, but here are some facts to consider:

  • DigitalOcean sells about $500-$550m of services each year.
  • They’ve lost money since they went public.
  • In November their stock was at $125.  Today it’s around $43.

That last point is interesting because that does not match the “everything bubble” pop.  DO stock hasn’t tanked because everything has tanked – though that is probably some of the story.  DO stock is down because the market doesn’t like DO.

They’re a $4bn company that has 786 employees.  This deal will add 30% to their headcount according to the press release.  Whatever internal culture DO has now will be shredded in the process.  I realize that’s a pessimistic view but that’s what I’ve seen, particularly in small companies.

It’d be interesting to know what that $350m amount means as a multiple of revenue.  Consider that DO has 786 employees generating $550m of revenue per year, which is about $700K/employee.  If DO paid 10x revenue for Cloudways (these tech deals are always stratospheric), that means revenue is $35m and each employee (235, calculated from DO’s stated 30% figure) is only $148,000 per person.  Is there a lot of fat to cut or is the Cloudways business model just very different?

Stay tuned.  Or drop DO and save 80% on your hosting bill in 15 minutes or less!

 

5 Comments

  1. Bomi:

    Ridiculous. Such a shameless business model.

    August 24, 2022 @ 10:12 am | Reply
  2. cheapdave:

    AFAIK, Cloudways is multicloud with a single input interface. I believe that is their USP to their customers who have the money to pay. It definitely appears to be an enterprise segment rather than DO’s mass market customer base. I haven’t used it, so you can ignore my opinion, btw.

    August 24, 2022 @ 11:35 am | Reply
  3. xenstar:

    I use cloudways since last 1.5 year. I moved from dreamhost to cloudways. For my main site, I use cloudways, because it gives me peace of mind that there is someone maintaining my servers on top of that, they do some good optimization aswell. I pay 27$ per month, but I am happy with the overall experience.

    August 25, 2022 @ 12:01 pm | Reply
    • Bomi:

      You don’t need to do anything to maintain a VPS really. DO is already doing all the work maintaining the hardware.
      The only real service they offer is that they migrate your software for you, which I suppose is valid.

      The massive 50%+ upcharge for this is just wild. If it was a couple bucks, fine, it would be reasonable. But this is borderline scam.

      August 31, 2022 @ 6:31 am | Reply
  4. neil:

    This story is misleading, so it says they put a panel on Digital Ocean; one look at Cloudways website says they also provide other services, such as Auto backups, RT monitoring, etc ! Furthermore, Cloudway provides similar panels and services for Vultr, Linode, AWS, Google Cloud !!
    Presumably buying Cloudway would include acquiring the customers on the other platforms too, not just DO.

    August 27, 2022 @ 11:58 am | Reply

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