Comparing DigitalOcean (NYSE:DOCN) and Unity Software (NYSE:U)

Unity Software (NYSE:U) and DigitalOcean (NYSE:DOCN) are both mid-cap computer and technology companies, but which is the better business? We will contrast the two businesses based on the strength of their institutional ownership, dividends, analyst recommendations, profitability, earnings, valuation and risk.

Volatility & Risk

Unity Software has a beta of 2.15, suggesting that its share price is 115% more volatile than the S&P 500. Comparatively, DigitalOcean has a beta of 1.76, suggesting that its share price is 76% more volatile than the S&P 500.

Profitability

This table compares Unity Software and DigitalOcean’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Unity Software	-21.77%	-4.76%	-2.27%
DigitalOcean	28.76%	-127.00%	8.88%

Institutional & Insider Ownership

73.5% of Unity Software shares are held by institutional investors. Comparatively, 49.8% of DigitalOcean shares are held by institutional investors. 3.6% of Unity Software shares are held by company insiders. Comparatively, 0.7% of DigitalOcean shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of current ratings for Unity Software and DigitalOcean, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Unity Software	1	8	13	1	2.61
DigitalOcean	0	5	9	0	2.64

Unity Software presently has a consensus target price of $39.73, suggesting a potential upside of 101.09%. DigitalOcean has a consensus target price of $69.23, suggesting a potential downside of 3.86%. Given Unity Software’s higher possible upside, equities analysts clearly believe Unity Software is more favorable than DigitalOcean.

Valuation and Earnings

This table compares Unity Software and DigitalOcean”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Unity Software	$1.85 billion	4.62	-$402.77 million	($0.96)	-20.58
DigitalOcean	$901.43 million	7.35	$259.26 million	$2.53	28.46

DigitalOcean has lower revenue, but higher earnings than Unity Software. Unity Software is trading at a lower price-to-earnings ratio than DigitalOcean, indicating that it is currently the more affordable of the two stocks.

Summary

Unity Software beats DigitalOcean on 8 of the 15 factors compared between the two stocks.

About Unity Software

Unity Software Inc. operates a real-time 3D development platform. Its platform provides software solutions to create, run, and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices. The company offers its solutions directly through its online store and field sales operations in North America, Denmark, Finland, the United Kingdom, Germany, Japan, China, Singapore, and South Korea, as well as indirectly through independent distributors and resellers worldwide. The company was founded in 2004 and is headquartered in San Francisco, California.

About DigitalOcean

DigitalOcean Holdings, Inc., through its subsidiaries, operates a cloud computing platform in North America, Europe, Asia, and internationally. The company’s platform provides on-demand infrastructure and platform tools for developers, start-ups, and small and growing digital businesses. It also offers infrastructure-as-a-service (IaaS) solutions comprising compute and storage services, as well as networking projects, including Cloud Firewalls software, Managed Load Balancers software, and Virtual Private Cloud (VPC). The company also provides platform-as-a-service (PaaS) solutions, such as managed databases; managed Kubernetes and container registry; application platform to build, deploy, and scale applications; Functions, a serverless compute solution; and Uptime for real-time uptime and latency alerts, as well as software-as-a-service (SaaS), including managed hosting and DigitalOcean Marketplace, a platform where developers can find pre-configured applications and solutions. In addition, it offers artificial intelligence (AI)/machine learning (ML) applications comprising GPU virtual machines for scaling AI applications; Notebooks, a simple cloud workspace that runs on GPUs that provides a managed interactive development environment for exploring data, and training and building machine learning models; and Deployments for deploying their machine learning model as an API endpoint. The company’s customers include software engineers, researchers, data scientists, system administrators, students, and hobbyists. Its customers use its platform in various industry verticals and for a range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and AI/ML applications. DigitalOcean Holdings, Inc. was incorporated in 2012 and is headquartered in New York, New York.