The 0 % coupon means the notes carry no cash‑interest payments during their life. For DigitalOcean this translates into an immediate cash‑inflow of roughly the $550 million proceeds (net of issuance costs) and a clean‑sheet cash‑flow outlook – the company will not have to set aside cash each quarter to service the debt. That improves short‑term liquidity and gives the firm more runway for growth initiatives or to refinance existing higher‑‑cost debt.
From an accounting perspective, however, a zero‑coupon note is issued at a discount to its $1,000 face value and the discount is amortized as “imputed” interest expense under the effective‑interest method. Over the 2020‑2030 term the company will record a steadily rising interest expense on the income statement, which will erode earnings per share (EPS) and affect profitability forecasts even though no cash is actually paid out. The expense is non‑cash, so it is added back in the operating cash‑flow section of the cash‑flow statement, but it does reduce net income and therefore the equity‑base used in valuation multiples.
The key trading implication is that the zero‑coupon structure eases cash‑flow pressure while still imposing a future dilution cost: the notes are convertible into equity at a set conversion price, so when the conversion date approaches (or if the stock price climbs above the conversion price) the company will issue new shares, expanding the capital base and potentially depressing the stock price through dilution. Investors should therefore price in a higher near‑term cash balance and no cash‑interest drag, but also factor in the incremental non‑cash interest expense and the dilution risk when modeling DigitalOcean’s forward‑looking earnings and cash‑flow forecasts. In practice, the issuance is a bullish signal for liquidity, but the upside is capped by the conversion terms—monitor the conversion price relative to market levels and adjust exposure accordingly.