Morgan Stanley Is Downgrading DigitalOcean, As Stock Falls Over 13%

While DigitalOcean Holdings Inc’s (NYSE: DOCN) share price already reflects benefits from pricing increases, it does not reflect the various risks and exposures for the second half of the year, according to Morgan Stanley.

The DigitalOcean Analyst: Josh Baer downgraded the rating for DigitalOcean from Equal-Weight to Underweight, while reducing the price target from $61 to $45.

The DigitalOcean Thesis: There is growing evidence of a slowdown in software spend, and the company faces higher risks due to its exposure to startups and small and medium businesses, Baer said in the downgrade note.

Moreover, the company has high exposure to the weakness in the European and Asian markets, with 69% of revenues being generated from outside the US in 2021, the analyst mentioned.

“DOCN shares have outperformed the NASDAQ by ~26% since May 16th, the day of the Company's blog post detailing pricing increases hit… While price increases should be viewed as a net positive, we do not think DigitalOcean's risks and exposures have been fully priced-into the stock,” he further wrote.

DOCN Price Action: Shares of DigitalOcean had declined by 13.02% to $40.27 at the time of publication Monday, according to Benzinga Pro.