Shares of data visualization and business intelligence company Domo (NASDAQ:DOMO) fell 5.2% in the pre-market session as major stock indices retreated, with the Nasdaq index recording the steepest decline compared to the S&P 500 and Dow after mixed earnings results from tech giants, including Alphabet (weak ad revenue), Microsoft (disappointing guidance), and AMD (weak guidance).
These results likely tempered the optimism that had been building since the late 2023 rally as the new earnings season kicked off. Moreover, market participants eagerly await the outcome of the Fed's first policy meeting of the year, scheduled for January 31, 2024, with the consensus expectation for rates to remain unchanged in the range of 5.25% to 5.5%.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Domo? Access our full analysis report here, it's free.
What is the market telling us:
Domo's shares are very volatile and over the last year have had 38 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 2 months ago, when the stock gained 10.3% on the news that the company reported third quarter results that topped analysts' EPS estimates. Its revenue and RPO (remaining performance obligations) also slightly beat Wall Street's projections, and its EPS guidance for the next quarter came in better than expected. Notably, the company delivered the highest Non-GAAP operating income in history of $5 million, coupled with a historic operating margin of 6%. This suggests a potential improvement in the company's operating leverage, even though it continues to experience cash burn.
Domo also shared positive results on the adoption of its consumption pricing model, with over 20% of its Annual Recurring Revenue (ARR) now on this model. With more than 400 customers on consumption contracts, representing over 15% of the customer base and over 20% of ARR, the company plans to transition the majority of its revenue to the consumption model by the end of the next year, citing accelerated user growth and increased adoption of premium features like data science. Zooming out, we think this was a strong quarter, showing that the company is on target.
Domo is up 9.3% since the beginning of the year, but at $10.95 per share it is still trading 41.4% below its 52-week high of $18.68 from February 2023. Investors who bought $1,000 worth of Domo's shares 5 years ago would now be looking at an investment worth $405.56.
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