DigitalOcean Holdings, Inc. (DOCN) shares tumbled 10.15% in pre-market trading on Tuesday after the cloud-computing company reported second-quarter results that beat estimates but issued third-quarter earnings guidance that implied a sharp sequential decline in profitability.

The company posted Q2 revenue of $281.18 million, edging past the consensus estimate of $279.2 million, while adjusted earnings per share came in at $0.45, well above the $0.26 analysts had expected. However, net income attributable to common stockholders slipped 4% year-over-year to $35.44 million, and operating income margin contracted to 10% from 16% a year earlier, reflecting rising costs, particularly in research and development and general administrative expenses.

For the third quarter, DigitalOcean guided for adjusted EPS of $0.28 to $0.30, which, while in line with the $0.28 LSEG IBES consensus, represents a significant drop from the $0.45 earned in the second quarter. The company also raised its full-year revenue outlook to $1.17 billion–$1.18 billion, implying 30%–31% growth, and projected full-year adjusted EPS of $1.35–$1.40, above the $1.25 consensus. Despite the raised annual forecast, the near-term profit compression appears to have rattled investors, triggering the pre-market sell-off.