DigitalOcean Makes a Splash With a Big Acquisition -- Is the Stock a Buy?
DigitalOcean Holdings (NYSE: DOCN), the cloud platform for small businesses and start-ups, just announced another acquisition. The company said it plans to acquire managed hosting service provider Cloudways for $350 million in cash. This purchase is a little different from what DigitalOcean's focus has been in the past, but it could make a lot of sense -- especially for the clients DigitalOcean serves.
Striking the deal was somewhat expensive for DigitalOcean and it represents a completely new business for the infrastructure company. Is the company up to the task of making the deal work and, more importantly, does it make this stock still a buy?
Help for the cash- and digital resource-strapped small businesses
Before delving into the acquisition itself, let's recap what DigitalOcean and Cloudways do. DigitalOcean is a cloud infrastructure business. Developers and small businesses can rent computing hardware that is housed in a data center and access that hardware via an internet connection. This computing hardware can be used to build applications, like a business website or a mobile app.
But getting a new digital tool up and running is one thing, and managing it is another. That's where Cloudways comes in. The company offers a managed cloud hosting service for small businesses. This can free up time and resources for a tiny operation and allow it to focus on the day-to-day running of the business instead of spending time making sure a website or app is functioning properly.
Cloudways doesn't offer any infrastructure itself, but instead partners with cloud providers like DigitalOcean. In fact, according to details of the acquisition, about half of Cloudways' customers utilize DigitalOcean for hosting. The other half use services like DigitalOcean competitor Linode, as well as public cloud giants Amazon Web Services and Alphabet's Google Cloud. For cybersecurity, Cloudways has a partnership with fellow small business tech provider Cloudflare.
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