Domo (DOMO) Gets Crushed on Earnings: Time to Make Lemonade
Domo (DOMO) reported Q1 earnings last night and fell as much as 19% after hours.
I do not plan to sell now! In fact, aggressive investors can buy into this morning’s weakness (shares are down 10% to 15%). Here’s why, starting with a one minute chart that shows buyers have stepped in. This may be just a fake bounce. But I suspect there are too many investors realizing that the growth story is intact and the current price is too tempting to pass on.
Domo’s Q1 results beat expectations. Revenue was up 28% to $40.8 million (beating by a slim $110K) while the EPS loss of -$1.08 crushed expectations for a loss of -$1.28. Management reiterated it has the capital to get to cash flow breakeven, which is a big milestone. And it’s backing up that promise with results, while guiding lower cash burn for this fiscal year than analysts expected.
Revenue guidance for Q2 and the fiscal year is likely the source of the volatility as the midpoint is a hair light (Q2 guided to $41.5 million versus $42.3 million expected, and FY 2020 guided to $173.5 million versus $173.7 million expected). But guidance is a range, and this was just Q1. There is a lot of time left in the year. The selloff seems grossly overdone to me.
Digging into details on the business, positive trends continue. Domo continues to focus its attention on larger enterprise deals, and in Q1 enterprise revenue growth accelerated to 33%. It now has 458 enterprise customers (+$1 billion in revenue each), an increase of 19% versus this time last year (11 new added in the quarter). Average corporate deal sizes grew by 30%.
The sales team, which was cut last year, is being retooled and expanded by 30% this year and is operating far more efficiently. Sales and marketing expenses were down 19% in Q1 but billings growth was up 22% (matching expectations). Full-year billings guidance of $198 million, up 20%, remains (matching consensus). Subscription revenue in Q1 of $34.4 million, up 29%, hit consensus.
Certainly, the quarter wasn’t a smashing success. Investor expectations probably got ahead of the curve. But it wasn’t a massive disappointment either. And this isn’t a stock where everyone is a believer yet, which makes Domo different from some of our other software stocks.
At this point I didn’t see anything to suggest the business isn’t on track. Domo has an incredibly robust BI tool with immense functionality. It’s valued by big businesses. And the recently announced $2.6 billion acquisition of Looker, a privately held BI start-up, by Alphabet (GOOG), points to the potential in this space. Keeping at buy. BUY.