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Domo (NASDAQ:DOMO) Q3 Sales Beat Estimates But Quarterly Guidance Underwhelms


Petr Huřťák /
2022/12/08 4:18 pm EST
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Data visualisation and business intelligence company Domo (NASDAQ:DOMO) reported Q3 FY2023 results beating Wall St's expectations, with revenue up 21.4% year on year to $79 million. However, guidance for the next quarter was less impressive, coming in at $77.5 million at the midpoint, being 3.54% below analyst estimates. Domo made a GAAP loss of $23.7 million, improving on its loss of $28.5 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 FY2023 Highlights:

  • Revenue: $79 million vs analyst estimates of $76.3 million (3.47% beat)
  • EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.26
  • Revenue guidance for Q4 2023 is $77.5 million at the midpoint, below analyst estimates of $80.3 million
  • Free cash flow was negative $8.13 million, compared to negative free cash flow of $3.83 million in previous quarter
  • Gross Margin (GAAP): 76%, up from 73.6% same quarter last year

“Domo helps companies of all sizes better leverage data so every employee can be a multiplier of business impact,” 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 two years, growing from quarterly revenue of $53.6 million in Q3 FY2021, to $79 million.

Domo Total Revenue

This quarter, Domo's quarterly revenue was once again up a very solid 21.4% year on year. On top of that, revenue increased $3.49 million quarter on quarter, a very strong improvement on the $1.06 million increase in Q2 2023, which shows acceleration of growth, and is great to see.

Guidance for the next quarter indicates Domo is expecting revenue to grow 10.7% year on year to $77.5 million, slowing down from the 23.1% 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 14.3% 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 76% in Q3.

Domo Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year, 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.

Key Takeaways from Domo's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Domo’s balance sheet, but we note that with a market capitalization of $497.8 million and more than $71 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Domo outperform Wall St’s revenue expectations this quarter. 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 were not the best we've seen from Domo. The company is up 0.55% on the results and currently trades at $14.97 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.