Data visualisation and business intelligence company Domo (NASDAQ:DOMO) missed analyst expectations in Q2 FY2023 quarter, with revenue up 20.2% year on year to $75.5 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $76.5 million at the midpoint, or 4.13% below analyst estimates. Domo made a GAAP loss of $29.1 million, down on its loss of $22.2 million, in the same quarter last year.
Is now the time to buy Domo? Access our full analysis of the earnings results here, it's free.
Domo (DOMO) Q2 FY2023 Highlights:
- Revenue: $75.5 million vs analyst estimates of $76.4 million (1.13% miss)
- EPS (non-GAAP): -$0.26 vs analyst estimates of -$0.33
- Revenue guidance for Q3 2023 is $76.5 million at the midpoint, below analyst estimates of $79.8 million
- The company dropped revenue guidance for the full year, from $317 million to $307.5 million at the midpoint, a 2.99% decrease
- Free cash flow was negative $3.83 million, down from positive free cash flow of $407 thousand in previous quarter
- Gross Margin (GAAP): 75.7%, up from 74% same quarter last year
“Domo is helping companies of all sizes leverage data across their organizations to increase revenue, improve efficiencies and drive better business outcomes — all at incredible speed,” said John Mellor, CEO, Domo.
Founded by Josh James after selling his former business Omniture to Adobe, Domo (NASDAQ:DOMO) provides business intelligence software that allows managers to access and visualize critical business metrics in real-time, using their smartphones.
Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the silo-ed data.
Sales Growth
As you can see below, Domo's revenue growth has been strong over the last year, growing from quarterly revenue of $62.8 million, to $75.5 million.
Even though Domo fell short of revenue estimates, its quarterly revenue growth was still up a very solid 20.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.06 million in Q2, compared to $4.47 million in Q1 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates Domo is expecting revenue to grow 17.5% year on year to $76.5 million, slowing down from the 21.3% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 22.1% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Domo's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 75.7% in Q2.
That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a good gross margin that allows companies like Domo to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Domo is doing a good job controlling costs and is not under pressure from competition to lower prices.
Key Takeaways from Domo's Q2 Results
With a market capitalization of $945 million Domo is among smaller companies, but its more than $79.8 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.
It was unfortunate to see that Domo's revenue guidance for the full year missed analysts' expectations and that free cash flow turned negative, year on year. Overall, this quarter's results could have been better. The company is down 2.02% on the results and currently trades at $28 per share.
Domo may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.