Domo (DOMO)

Business intelligence platform Domo (NASDAQ:DOMO) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 1.7% year on year to $79.72 million. Its non-GAAP profit of $0.02 per share was significantly above analysts’ consensus estimates.

Company Overview

Named for the Japanese word meaning "thank you very much," Domo (NASDAQ:DOMO) provides a cloud-based business intelligence platform that connects people with real-time data and insights across organizations.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the siloed data.

Domo competes with large enterprise software providers like Microsoft, Oracle, SAP, Salesforce, and IBM. In the specialized business analytics space, it faces competition from Tableau (owned by Salesforce), Qlik, Looker (owned by Google), MicroStrategy, ThoughtSpot, Sisense, and Tibco Software.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Domo’s sales grew at a weak 3.8% compounded annual growth rate over the last three years. This was below our standard for the software sector and is a rough starting point for our analysis.

This quarter, Domo reported modest year-on-year revenue growth of 1.7% but beat Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates its products and services will face some demand challenges.

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.

Domo’s billings came in at $70.33 million in Q2, and it averaged 1.1% year-on-year declines over the last four quarters. This performance mirrored its total sales and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Domo’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Domo’s products and its peers.

For software companies like Domo, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Domo’s gross margin is good for a software business and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 74.6% gross margin over the last year. That means for every $100 in revenue, roughly $74.59 was left to spend on selling, marketing, and R&D.

Domo’s gross profit margin came in at 74.8% this quarter, 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.

Domo’s expensive cost structure has contributed to an average operating margin of negative 14.1% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if Domo reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

Over the last year, Domo’s expanding sales gave it operating leverage as its margin rose by 4.9 percentage points. Still, it will take much more for the company to reach long-term profitability.

This quarter, Domo generated a negative 9.1% operating margin. The company's consistent lack of profits raise a flag.

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.

While Domo posted positive free cash flow this quarter, the broader story hasn’t been so clean. Domo’s demanding reinvestments have consumed many resources over the last year, contributing to an average free cash flow margin of negative 1.6%. This means it lit $1.60 of cash on fire for every $100 in revenue.

Domo’s free cash flow clocked in at $1.38 million in Q2, equivalent to a 1.7% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

Looking forward, analysts predict Domo will generate cash on a full-year basis. Their consensus estimates imply its free cash flow margin of negative 1.6% for the last 12 months will increase to positive 1.4%, giving it more money to invest.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Domo burned through $5.10 million of cash over the last year, and its $137.2 million of debt exceeds the $47.14 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Domo’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Domo until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly Domo blew past analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its billings missed. Overall, this print had some key positives. The stock traded up 1.8% to $15.60 immediately after reporting.

Updated: November 9, 2025 at 9:02 PM EST

Before deciding whether to buy Domo or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We cheer for all companies solving complex business issues, but in the case of Domo, we’ll be cheering from the sidelines. First off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its gross margin suggests it can generate sustainable profits, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its operating margins reveal poor profitability compared to other software companies.

Domo’s price-to-sales ratio based on the next 12 months is 1.6x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $18.50 on the company (compared to the current share price of $12.63).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.