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Domo (NASDAQ:DOMO) Posts Q1 Sales In Line With Estimates But Stock Drops 12.5%


Full Report / May 23, 2024

Data visualization and business intelligence company Domo (NASDAQ:DOMO) reported results in line with analysts' expectations in Q1 CY2024, with revenue flat year on year at $80.1 million. On the other hand, next quarter's revenue guidance of $76.5 million was less impressive, coming in 3.9% below analysts' estimates. It made a non-GAAP loss of $0.33 per share, down from its loss of $0.17 per share in the same quarter last year.

Domo (DOMO) Q1 CY2024 Highlights:

  • Revenue: $80.1 million vs analyst estimates of $79.5 million (small beat)
  • EPS (non-GAAP): -$0.33 vs analyst estimates of -$0.23
  • Revenue Guidance for Q2 CY2024 is $76.5 million at the midpoint, below analyst estimates of $79.64 million
  • Full year guidance, given in the previous earnings release, was pulled this quarter
  • Gross Margin (GAAP): 74.1%, down from 76.6% in the same quarter last year
  • Free Cash Flow was -$625,000, down from $2.93 million in the previous quarter
  • Market Capitalization: $279.4 million

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.

Data Analytics

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 siloed data.

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 unremarkable over the last three years, growing from $60.06 million in Q1 2022 to $80.1 million this quarter.

Domo Total Revenue

Domo's quarterly revenue was only up 0.8% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $81,000 in Q1 compared to the $509,000 increase in Q4 CY2023. Taking a closer look we can a similar revenue decline in the same quarter last year, which could suggest that the business has seasonal elements. Regardless, this situation is worth monitoring as management is guiding for a further revenue drop in the next quarter.

Next quarter, Domo is guiding for a 4% year-on-year revenue decline to $76.5 million, a further deceleration from the 5.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 0.3% over the next 12 months before the earnings results announcement.

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 74.1% in Q1.

Domo Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its decline over the last year, Domo's gross margin is still around the average of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Domo burned through $625,000 of cash in Q1 , increasing its cash burn by 12.7% year on year.

Domo Free Cash Flow

Domo has burned through $5.65 million of cash over the last 12 months, resulting in a negative 1.8% free cash flow margin. This low FCF margin stems from Domo's constant need to reinvest in its business to stay competitive.

Key Takeaways from Domo's Q1 Results

We struggled to find many strong positives in these results. Its revenue guidance for next quarter missed analysts' expectations and its billings missed Wall Street's estimates. Potentially more worrisome, the company did not reiterate or update its full year guidance, which it gave last quarter. This could mean that visibility into demand trends is murky or changing rapidly. Overall, this was a mediocre quarter for Domo. The company is down 12.5% on the results and currently trades at $6.25 per share.

Is Now The Time?

Domo may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for everyone who's making the lives of others easier through technology, but in case of Domo, we'll be cheering from the sidelines. Its revenue growth has been uninspiring over the last three years, and analysts expect growth to deteriorate from here. And while its strong gross margins suggest it can operate profitably and sustainably, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its growth is coming at the cost of significant cash burn.

While we've no doubt one can find things to like about Domo, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

Wall Street analysts covering the company had a one-year price target of $14.20 right before these results (compared to the current share price of $6.25).

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