Doximity (NYSE:DOCS) Exceeds Q3 Expectations But Stock Drops 10.1%

Full Report / February 08, 2024

Healthcare professional network Doximity (NYSE:DOCS) reported results ahead of analysts' expectations in Q3 FY2024, with revenue up 17.4% year on year to $135.3 million. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $116.4 million was less impressive, coming in 1.4% below expectations. It made a non-GAAP profit of $0.29 per share, improving from its profit of $0.22 per share in the same quarter last year.

Doximity (DOCS) Q3 FY2024 Highlights:

  • Revenue: $135.3 million vs analyst estimates of $127.5 million (6.1% beat)
  • EPS (non-GAAP): $0.29 vs analyst estimates of $0.24 (23% beat)
  • Revenue Guidance for Q4 2024 is $116.4 million at the midpoint, below analyst estimates of $118.1 million
  • Free Cash Flow of $48.73 million, up from $11.62 million in the previous quarter
  • Gross Margin (GAAP): 91%, up from 88.3% in the same quarter last year
  • Market Capitalization: $5.09 billion

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 U.S.healthcare system has lagged other sectors and industries in creating innovative technology solutions for basic issues. A primary example are electronic health records, which were mandated a decade ago, but still face interoperability issues. Additionally, doctors are challenged by fragmented knowledge bases which makes it difficult to stay on top of the latest developments in treatment and research, and it is often difficult to connect with top specialists around the country. Likewise, many pharmaceutical manufacturers and health systems don’t have a good source for targeted marketing campaigns or recruiting initiatives.

Doximity was created as a professional cloud-based platform to solve these issues, sort of a cross between LinkedIn and Salesforce.com. Membership for physicians is free, and Doximity provides workflow tools that enable them to collaborate with their colleagues, securely coordinate patient care, conduct virtual patient visits, stay up-to-date with the latest medical news and research, and manage their careers. With a majority of US doctors on the platform, Doximity has become the default US medical professional network, with network effects helping it to sustain its position.

The company’s business model is largely subscription based marketing, with large pharmaceutical companies and health care systems able to direct tailored content to an aggregated collection of specialists across any field. Other revenue generators include Dialer, Doximity’s Telehealth tool, and Hiring solutions, which are recruiting tools.

Healthcare And Life Sciences Software

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.

Doximity’s competitors on the advertising side of the business include Microsoft’s LinkedIn (NASDAQ: MSFT), Facebook (NASDAQ: FB), along with Google (NASDAQ: GOOGL), and Twitter (NASDAQ: TWTR). On the telehealth side, Doximity’s chief rivals include American Well Corporation (NYSE: AMWL) and Teladoc Health (NYSE: TDOC).

Sales Growth

As you can see below, Doximity's revenue growth has been strong over the last two years, growing from $97.88 million in Q3 FY2022 to $135.3 million this quarter.

Doximity Total Revenue

This quarter, Doximity's quarterly revenue was once again up 17.4% year on year. We can see that Doximity's revenue increased by $21.67 million quarter on quarter, which is a solid improvement from the $5.14 million increase in Q2 2024. Shareholders should applaud the re-acceleration of growth.

Next quarter's guidance suggests that Doximity is expecting revenue to grow 4.9% year on year to $116.4 million, slowing down from the 18.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 7.2% over the next 12 months before the earnings results announcement.


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. Doximity'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 91% in Q3.

Doximity Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.91 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Doximity's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

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 $48.73 million in Q3, roughly the same as last year.

Doximity Free Cash Flow

Doximity has generated $161.6 million in free cash flow over the last 12 months, an eye-popping 34.7% 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 Q3 Results

We enjoyed seeing Doximity exceed analysts' revenue expectations this quarter and produce strong free cash flow. On the other hand, its revenue guidance for next quarter missed analysts' expectations. Docs was priced for perfection and the company is down 10.1% on the results and currently trades at $25.39 per share.

Is Now The Time?

When considering an investment in Doximity, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Although we have other favorites, we understand the arguments that Doximity isn't a bad business. We'd expect growth rates to moderate from here, but its . And while its customer acquisition is less efficient than many comparable companies, the good news is its bountiful generation of free cash flow empowers it to invest in growth initiatives.

Doximity's price-to-sales ratio based on the next 12 months of 11.3x indicates that the market is definitely optimistic about its growth prospects. In the end, beauty is in the eye of the beholder. While Doximity wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

Wall Street analysts covering the company had a one-year price target of $27.92 per share right before these results (compared to the current share price of $25.39).

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