Doximity (NYSE:DOCS) Beats Q1 Sales Targets But Stock Drops 16.9% On Weak Guidance

Radek Strnad /
2023/08/08 4:09 pm EDT

Healthcare professional network Doximity (NYSE:DOCS) reported results ahead of analysts' expectations in Q1 FY2024, with revenue up 19.7% year on year to $108.5 million. However, next quarter's revenue guidance of $109 million was less impressive, coming in 10.2% below analysts' estimates. Doximity made a GAAP profit of $28.4 million, improving from its profit of $22.4 million in the same quarter last year.

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Doximity (DOCS) Q1 FY2024 Highlights:

  • Revenue: $108.5 million vs analyst estimates of $107 million (1.35% beat)
  • EPS (non-GAAP): $0.19 vs analyst estimates of $0.15 (30.2% beat)
  • Revenue Guidance for Q2 2024 is $109 million at the midpoint, below analyst estimates of $121.3 million
  • The company dropped revenue guidance for the full year from $503 million to $460 million at the midpoint, a 8.55% decrease
  • Free Cash Flow of $55.6 million, up 22% from the previous quarter
  • Gross Margin (GAAP): 87.9%, up from 85.6% in the same quarter last year

“We’re pleased to report another quarter of record engagement across our entire platform, with over 525,000 unique providers using our workflow tools in Q1,” said Jeff Tangney, co-founder and CEO at Doximity.

Founded in 2010 and named for a combination of “docs” and “proximity”, Doximity (NYSE: DOCS) is the leading social network for U.S. medical professionals.

The coronavirus pandemic has underscored the importance of high-quality health infrastructure in times of crisis. Coupled with intense competition between drugmakers and the growing volume of data in the health care sector, demand for data management solutions in the healthcare space is expected to remain strong in the years ahead.

Sales Growth

As you can see below, Doximity's revenue growth has been very strong over the last two years, growing from $72.7 million in Q1 FY2022 to $108.5 million this quarter.

Doximity Total Revenue

This quarter, Doximity's quarterly revenue was once again up 19.7% year on year. However, its revenue actually decreased again in Q1 by $2.5 million, following the same trend as its $4.3 million decrease in Q4 2023. While one-off fluctuations aren't always concerning, we have no doubt that shareholders would like to see its revenue rebound soon.

Next quarter's guidance suggests that Doximity is expecting revenue to grow 6.67% year on year to $109 million, slowing down from the 28.8% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 20.1% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

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. Doximity's free cash flow came in at $55.6 million in Q1, up 30.5% year on year.

Doximity Free Cash Flow

Doximity has generated $186.4 million in free cash flow over the last 12 months, an eye-popping 42.6% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Doximity's Q1 Results

With a market capitalization of $6.71 billion, Doximity is among smaller companies, but its $873.2 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

It was comforting to see that Doximity topped analysts' revenue expectations this quarter, even if just narrowly. That really stood out as a positive in these results, together with strong free cash flow. On the other hand, its revenue guidance missed analysts' expectations significantly and is indicating a pretty significant slowdown in growth. Overall, this was a mediocre quarter for Doximity. The company is down 16.9% on the results and currently trades at $27.25 per share.

Doximity may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.