Doximity (NYSE:DOCS) Reports Q2 Results

Full Report / January 04, 2022
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Healthcare professional network Doximity (NYSE:DOCS) beat analyst expectations in Q2 FY2022 quarter, with revenue up 75.8% year on year to $79.3 million. Guidance for next quarter's revenue was surprisingly good, being $86.3 million at the midpoint, 15.6% above what analysts were expecting. Doximity made a GAAP profit of $36 million, improving on its profit of $10 million, in the same quarter last year.

Doximity (DOCS) Q2 FY2022 Highlights:

  • Revenue: $79.3 million vs analyst estimates of $73.5 million (7.9% beat)
  • EPS (non-GAAP): $0.19 vs analyst estimates of $0.09 ($0.10 beat)
  • Revenue guidance for Q3 2022 is $86.3 million at the midpoint, above analyst estimates of $74.5 million
  • The company lifted revenue guidance for the full year, from $298 million to $327.1 million at the midpoint, a 9.76% increase
  • Free cash flow of $18 million, down 44.2% from previous quarter
  • Net Revenue Retention Rate: 173%, up from 167% previous quarter
  • Gross Margin (GAAP): 88.7%, up from 83.4% same quarter last year

Founded in 2010 and named for a combination of “docs” and “proximity”Doximity (NYSE: DOCS) is the leading professional 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.

The coronavirus pandemic has underscored the importance of high-quality healthcare infrastructure in times of crisis. The explosion of biotechnology startups over the past decade has meant a robust pipeline for new drugs on the way, drugs that will need to be marketed to potential users. The coronavirus also highlighted to US pharma companies that digital ad spend proved more effective than traditional sales reps, a trend sure to continue going forward.

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 incredible over the last year, growing from quarterly revenue of $45.1 million, to $79.3 million.

Doximity Total Revenue

This was another standout quarter with the revenue up a splendid 75.8% year on year. On top of that, revenue increased $6.68 million quarter on quarter, a solid improvement on the $5.98 million increase in Q1 2022, and happily, a slight acceleration of growth.

Analysts covering the company are expecting the revenues to grow 17.9% over the next twelve months.

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

Doximity Net Revenue Retention Rate

Doximity's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 173% in Q2. That means even if they didn't win any new customers, Doximity would have grown its revenue 73% year on year. Significantly up from the last quarter, this is an absolutely exceptional retention rate, meaning Doximity's software is extremely successful with their customers who are rapidly expanding the use of it across their organizations.


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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 88.7% in Q2.

Doximity Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.88 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year this is a great gross margin, that allows companies like Doximity to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Doximity's Q2 Results

With a market capitalization of $9.97 billion Doximity is among smaller companies, but its more than $742.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were impressed by the very optimistic revenue guidance Doximity provided for the next quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company currently trades at $53.2 per share.

Is Now The Time?

Doximity may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. There are a number of reasons why we think Doximity is a great business. While we would expect growth rates to moderate from here, its revenue growth has been exceptional, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

Doximity's price to sales ratio based on the next twelve months of 35.4x indicates that the market is definitely optimistic about its growth prospects. But looking at the tech landscape today, Doximity's qualities stand out and we still like it at this price.

The Wall St analysts covering the company had a one year price target of $63.5 per share right before these results, implying that they saw upside in buying Doximity even in the short term.

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