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Domo (NASDAQ:DOMO) Surprises With Q2 Sales, Upgrades Full Year Guidance


Full Report / August 26, 2021
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Data visualisation and business intelligence company Domo (NASDAQ:DOMO) reported strong growth in the Q2 FY2022 earnings announcement, with revenue up 22.8% year on year to $62.8 million. Domo made a GAAP loss of $22.2 million, down on its loss of $17.9 million, in the same quarter last year.

Domo (DOMO) Q2 FY2022 Highlights:

  • Revenue: $62.8 million vs analyst estimates of $60.8 million (3.22% beat)
  • EPS (non-GAAP): -$0.30 vs analyst estimates of -$0.36
  • Revenue guidance for Q3 2022 is $64 million at the midpoint, above analyst estimates of $63.3 million
  • The company lifted revenue guidance for the full year, from $249 million to $254 million at the midpoint, a 2% increase
  • Free cash flow of $529 thousand, up from negative free cash flow of -$373 thousand in previous quarter
  • Gross Margin (GAAP): 74%, in line with previous quarter

Founded in 2010, 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.

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.

In the business intelligence space, Domo is competing with Tableau (owned by Salesforce), Microsoft (NASDAQ:MSFT), and SAP (NYSE:SAP).

Sales Growth

As you can see below, Domo's revenue growth has been strong over the last year, growing from quarterly revenue of $51.1 million, to $62.8 million.

Domo Total Revenue

This quarter, Domo's quarterly revenue was once again up a very solid 22.8% year on year. But the growth did slow down a little compared to last quarter, as Domo increased revenue by $2.76 million in Q2, compared to $3.21 million revenue add in Q1 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 16.6% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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, licences, technical support and other necessary running expenses was at 74% in Q2.

Domo Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.74 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 Q2 Results

With a market capitalization of $3.06 billion Domo is among smaller companies, but its more than $86.3 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see Domo outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the rest of the year was upgraded. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is down -4.62% on the results and currently trades at $93.3 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, but apart from that we don't find many strong reasons to get excited about the company.

Domo's price to sales ratio based on the next twelve months is 11.5, 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, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

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