Data visualisation and business intelligence company Domo (NASDAQ:DOMO) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 23.9% year on year to $74.4 million. Guidance for the full year also exceeded estimates, coming in at $317 million at the midpoint. Domo made a GAAP loss of $32.8 million, down on its loss of $18.1 million, in the same quarter last year.
Domo (DOMO) Q1 FY2023 Highlights:
- Revenue: $74.4 million (small beat)
- EPS (non-GAAP): -$0.23 vs analyst estimates of -$0.40
- Revenue guidance for Q2 2023 is $76.5 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed revenue guidance for the full year, at $317 million at the midpoint
- Free cash flow of $407 thousand, up from negative free cash flow of $643 thousand in previous quarter
- Gross Margin (GAAP): 76.2%, up from 74.7% same quarter last year
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.
Serial entrepreneur Josh James founded the company, after selling his prior company, Omniture, to Adobe (NASDAQ:ADBE). He had noticed that it was very difficult for the management to understand the vital signs of their company since data around various metrics such as staff numbers, retention rates, and customer acquisition costs were often held in disparate systems.
Today, Domo allows decision makers to monitor all these things and more from their phone and can draw data from thousands of sources, such as disparate points of sales across a large franchisee network.
For example, pharmaceutical companies rely on Domo's software to track the temperature of perishable products as they travel through the supply chain via real time updates. This helps them to test different refrigeration systems to know which one performs best, ensuring they save costs and deliver their products faster to users.
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.
In the business intelligence space, Domo is competing with Tableau (owned by Salesforce), Microsoft (NASDAQ:MSFT), and SAP (NYSE:SAP).
As you can see below, Domo's revenue growth has been strong over the last year, growing from quarterly revenue of $60 million, to $74.4 million.
This quarter, Domo's quarterly revenue was once again up a very solid 23.9% year on year. Quarter on quarter the revenue increased by $4.47 million in Q1, which was in line with Q4 2022. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.
Guidance for the next quarter indicates Domo is expecting revenue to grow 21.7% year on year to $76.5 million, in line with the 22.8% 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.
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 76.2% in Q1.
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. Significantly up from the last quarter, 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.
Cash Is King
If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Domo's free cash flow came in at $407 thousand in Q1, turning positive year on year.
Domo has burned through $1.22 million in cash over the last twelve months, resulting in a negative 0.44% free cash flow margin. This below average FCF margin is a result of Domo's need to invest in the business to continue penetrating its market.
Key Takeaways from Domo's Q1 Results
With a market capitalization of $1 billion Domo is among smaller companies, but its more than $83.9 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.
We enjoyed seeing Domo’s improve their gross margin materially this quarter. And we were also glad to see good revenue growth. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $30.14 per share.
Is Now The Time?
When considering Domo, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Domo we will be cheering from the sidelines. Its revenue growth has been solid, and analysts believe that sort of growth is sustainable for now. But while its strong gross margins suggest it can operate profitably and sustainably, unfortunately its customer acquisition is less efficient than many comparable companies.
Domo's price to sales ratio based on the next twelve months is 3.0x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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