DigitalOcean Issues $1.47B in Stock to Buy Back In-the-Money Converts
Serial Equity Issuance
Company Background
DigitalOcean (NYSE: DOCN) is a cloud infrastructure and AI platform provider that targets developers and digital-native businesses. The company generated $901 million in revenue for fiscal 2025, up 15% year-over-year, and has been repositioning itself as an AI-native cloud, reporting that AI Customer ARR grew 221% year-over-year in the first quarter of 2026 and that revenue grew approximately 29% in the second quarter.
The growth acceleration has been dramatic. Preliminary second-quarter 2026 results announced July 7 showed Remaining Performance Obligations expected to exceed $800 million — a more than 10-fold increase from the year-ago quarter — with more than $550 million of that RPO added in Q2 alone. Management raised its 2027 revenue growth outlook to over 50%, up from a 30% target communicated just a year earlier. The stock has responded accordingly.
To fund that expansion, DigitalOcean has been actively rebuilding its balance sheet. In August 2025 the company issued $625 million of 0.00% Convertible Senior Notes due 2030 with a conversion price of approximately $39.17 per share — and in March 2026 it raised approximately $889 million in a follow-on share offering at $74.40 per share, using a portion to repay its Term Loan A.
What Was Disclosed
On July 23, 2026, DigitalOcean completed a registered direct offering of 12,543,915 shares of common stock at $117.54 per share, raising approximately $1.474 billion. Simultaneously, the company used those proceeds — combined with cash on hand — to repurchase $471,828,000 principal amount of its outstanding 0.00% Convertible Senior Notes due 2030 from a limited number of holders in separate, privately negotiated transactions. The aggregate cash paid for the notes was approximately $1.474 billion, implying a repurchase price of roughly 3.1 times the face value of the debt retired.
The equity offering was made pursuant to DigitalOcean's automatic shelf registration statement, with a preliminary prospectus supplement filed July 14, a pricing term sheet filed July 16, and a final prospectus supplement filed July 17. The shelf itself was filed March 24, 2026. The company entered into share purchase agreements directly with the noteholders in connection with the offering, meaning the buyers of the new equity were the same parties selling back the notes.
After this transaction, approximately $153 million of the original $625 million in 2030 convertible notes remains outstanding.
Why It Matters
The repurchase price of 3.1x par is not arbitrary — it is approximately what the notes are worth given where the stock trades. The 2030 converts carry a conversion rate of 25.5317 shares per $1,000 principal, equivalent to a conversion price of $39.17. With the stock at $117.54 at the time of the offering, each $1,000 of principal was convertible into shares worth roughly $3,000. Paying $3.12 in cash per $1 of face value is therefore close to the economic value of the notes, not a premium extracted by opportunistic holders. Had the notes simply converted into equity, they would have generated slightly fewer new shares (~12.05 million on this $471.8 million tranche) than the 12.54 million shares the company issued — making the cash-intermediated transaction broadly share-count equivalent to a straight conversion, while giving holders liquidity in cash rather than stock.
The more notable dimension of this transaction is its context: it is the second equity offering in approximately four months. The March 2026 offering priced at $74.40, and this one at $117.54 — a 58% higher price. The two offerings together have added roughly 24.5 million shares to the company's count since the start of 2026, against a base of approximately 92 million shares outstanding at year-end 2025. That is material dilution, executed at successively higher prices as the stock has risen on AI momentum.
One partial offset: the capped call transactions DigitalOcean entered at the time of the August 2025 notes issuance covered dilution up to a cap price of $66.51 per share. With the stock now at $117.54 — well above that cap — the capped calls no longer mitigate the conversion dilution from the remaining $153 million of outstanding converts. Management has in effect chosen to address the overhang by buying back notes with newly issued shares rather than waiting for conversion, which removes certainty of future dilution at the cost of near-term share issuance.