What Happened:
Shares of data visualization and business intelligence company Domo (NASDAQ:DOMO) fell 16% in the pre-market session after The company reported first-quarter earnings results, with billings missing Wall Street's estimates. Guidance wasn't encouraging, as revenue projections for the next quarter missed analysts' expectations. 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. Adding to the concerns, cash flow turned negative, following the rare positive cash inflow recorded in the previous quarter. Overall, this was a mediocre quarter for Domo, providing little reasons for investors to stay positive.
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 22 moves greater than 5%. But moves this big are very rare even for Domo and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 13.3% on the news that the company reported fourth-quarter results and provided full-year revenue guidance below expectations, suggesting a slowdown in demand. Billings' guidance for the next quarter also fell short, with the management expecting the growth to stay flat quarter on quarter. Total remaining performance obligations (RPO - leading revenue growth indicator) grew only 1% during the quarter, suggesting sales remained pressured by "a challenging macro environment." While it is encouraging to learn that roughly 2/3 of customers are still on multiyear contracts, management observed weaknesses in the installed base, adding, "We had some down-sells at three enterprise customers that, combined with more normal churn, led to gross retention of 82% and net retention of 91%."
Moving on to the bottom line, full-year non-GAAP EPS loss guidance underwhelmed, with management expecting it to come within a range of -$0.36 and -$0.46 (versus a consensus estimate of -0.02). Margins continued to feel the pressure from investments in new products, including efforts to build AI functionalities that could add more value to its customers. As a result, while Domo's free cash flow was positive during the quarter, it might be tough to maintain the trend going forward. Overall, this was a weak quarter for Domo, with the results suggesting there is more work to be done to raise investor sentiment.
Domo is down 30.2% since the beginning of the year, and at $6.99 per share it is trading 60.9% below its 52-week high of $17.87 from July 2023. Investors who bought $1,000 worth of Domo's shares 5 years ago would now be looking at an investment worth $199.94.
Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.