DigitalOcean gains on new buy rating at Citi

Investing.com -- DigitalOcean Holdings shares were trading up more than 6% after Citi initiated coverage on the stock with a "Buy" rating and a $45 price target given leadership overhaul and new growth strategies as catalysts for a turnaround in the cloud infrastructure provider’s fortunes.

Citi said new leadership including a new CEO and C-Suite executives comes "with much-needed technical horsepower and experience" steering DigitalOcean toward a product-led growth strategy and heightened developer engagement.

The company has faced slowed topline growth due to widening technology gaps and weakened customer engagement in 2022-23.

Citi analysts noted improved product roadmaps and go-to-market initiatives, positioning the company to compete in the fragmented cloud hosting space. The firm highlighted multiple growth levers, such as upselling existing customers, attracting smaller-scale hyperscalers, and boosting brand awareness.

Trading at roughly 5 times enterprise value-to-sales, DigitalOcean offers "ground-floor" potential for investors seeking exposure to a high-margin, turnaround story, Citi said.

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