Doximity (DOCS)

Medical professional network Doximity (NYSE:DOCS) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 23.2% year on year to $168.5 million. The company expects next quarter’s revenue to be around $180.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.45 per share was 18.7% above analysts’ consensus estimates.

Company Overview

With over 80% of U.S. physicians as members of its digital community, Doximity (NYSE:DOCS) operates a digital platform that enables physicians and other healthcare professionals to collaborate, stay current with medical news, manage their careers, and conduct virtual patient visits.

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 include broad professional networks like LinkedIn (owned by Microsoft, NASDAQ:MSFT) and Facebook (Meta Platforms, NASDAQ:META), as well as healthcare-specific platforms like Sermo and Figure 1. In the telehealth space, they compete with Teladoc Health (NYSE:TDOC) and Amwell (NYSE:AMWL), while their scheduling tools face competition from QGenda.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Doximity’s sales grew at an excellent 32.8% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Doximity’s annualized revenue growth of 17.7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Doximity reported robust year-on-year revenue growth of 23.2%, and its $168.5 million of revenue topped Wall Street estimates by 7.2%. Company management is currently guiding for a 7.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 7% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Doximity’s billings punched in at $151.3 million in Q3, and over the last four quarters, its growth was impressive as it averaged 20.1% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Doximity is extremely efficient at acquiring new customers, and its CAC payback period checked in at 5.3 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Doximity more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Doximity’s gross margin is one of the best in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 90.2% gross margin over the last year. That means Doximity only paid its providers $9.80 for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Doximity has seen gross margins improve by 2.1 percentage points over the last 2 year, which is solid in the software space.

In Q3, Doximity produced a 90.3% gross profit margin, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Doximity has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 39.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Doximity’s operating margin rose by 1.1 percentage points over the last two years, as its sales growth gave it operating leverage.

This quarter, Doximity generated an operating margin profit margin of 37.8%, down 1.1 percentage points year on year. Since Doximity’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Doximity has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 50.2% over the last year.

Doximity’s free cash flow clocked in at $91.58 million in Q3, equivalent to a 54.3% margin. This result was good as its margin was 5.5 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.

Over the next year, analysts predict Doximity’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 50.2% for the last 12 months will decrease to 46.1%.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Doximity is a profitable, well-capitalized company with $878.4 million of cash and $11.27 million of debt on its balance sheet. This $867.1 million net cash position is 7.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Doximity blew past analysts’ EBITDA expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA guidance for next quarter missed. Overall, we think this was a decent quarter with some key metrics above expectations. Investors were likely hoping for more, and shares traded down 6.2% to $58.65 immediately following the results.

Updated: December 4, 2025 at 9:20 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Doximity.

Doximity is an amazing business ranking highly on our list. First of all, the company’s revenue growth was impressive over the last five years. And while its expanding operating margin shows it’s becoming more efficient at building and selling its software, its bountiful generation of free cash flow empowers it to invest in growth initiatives. On top of that, Doximity’s admirable gross margin indicates excellent unit economics.

Doximity’s price-to-sales ratio based on the next 12 months is 15.3x. You get what you pay for, and in this particular situation, Doximity’s higher valuation multiple is justified because its fundamentals shine bright. We think it deserves a spot in your portfolio.

Wall Street analysts have a consensus one-year price target of $68.53 on the company (compared to the current share price of $51.05), implying they see 34.2% upside in buying Doximity in the short term.