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Domo (NASDAQ:DOMO) Q3: Stock Drops On Weak Guidance


Adam Hejl /
2021/12/02 4:29 pm EST
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Data visualisation and business intelligence company Domo (NASDAQ:DOMO) announced better-than-expected results in the Q3 FY2022 quarter, with revenue up 21.3% year on year to $65 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $67 million at the midpoint, or 1.05% below analyst estimates. Domo made a GAAP loss of $28.5 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) Q3 FY2022 Highlights:

  • Revenue: $65 million vs analyst estimates of $64.3 million (1.19% beat)
  • EPS (non-GAAP): -$0.32 vs analyst estimates of -$0.34
  • Revenue guidance for Q4 2022 is $67 million at the midpoint, below analyst estimates of $67.7 million
  • Free cash flow was negative $1.51 million, down from positive free cash flow of $529 thousand in previous quarter
  • Gross Margin (GAAP): 73.6%, in line with same quarter last year

“We delivered strong results for the quarter, driven by continued market demand for our core modern BI solution and fueled by increasing demand for data-enabled apps to help our customers run their businesses on the Domo platform,” said Josh James, founder and 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.

It's no secret that corporations everywhere are producing and monitoring more and more data sources for insights about their business. As this trend continues, the demand for business intelligence tools is expected to increase.

Sales Growth

As you can see below, Domo's revenue growth has been strong over the last year, growing from quarterly revenue of $53.6 million, to $65 million.

Domo Total Revenue

This quarter, Domo's quarterly revenue was once again up a very solid 21.3% year on year. But the growth did slow down a little compared to last quarter, as Domo increased revenue by $2.25 million in Q3, compared to $2.76 million revenue add in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 18.1% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Domo. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. 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 73.6% in Q3.

Domo Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the average of what we typically see in SaaS businesses, but 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 a pressure from competition to lower prices.

Key Takeaways from Domo's Q3 Results

With a market capitalization of $2.06 billion Domo is among smaller companies, but its more than $84.2 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Domo topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 9.16% on the results and currently trades at $59 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.