San Francisco, California – Out-of-favor tech companies have found a ray of hope in the Q2 earnings season, as they navigate recent declines. One such company, Domo (NASDAQ: DOMO), a software company known for its business intelligence products enabling companies to visualize enterprise data, saw a nearly 5% jump in its stock after reporting Q2 results. Despite the surprising worsening of the company’s growth metrics, the stock has rallied by more than 20% since hitting a low in late May, prompting some to consider this an opportune time to sell given looming macroeconomic uncertainties.
Following a rally post-earnings, Domo’s market cap stands at just $305.9 million, with an enterprise value of $358.5 million after factoring in cash and debt. Despite reinstating its full-year guidance, Domo now expects a revenue decline of 2-1%, lower than its initial outlook, reflecting ongoing challenges in the market.
Analysts foresee modest growth for Domo in FY25, with revenue expected to increase by 2% year-over-year. However, fundamental red flags signal significant challenges, including stagnating billings and revenue, intense competition in the BI space, weakening operating margins, and limited liquidity coupled with more debt than cash. These factors pose significant risks for Domo’s future prospects and profitability.
While Domo’s recent shift to a consumption-focused billings model aimed to revitalize growth rates, the results thus far have been lackluster, with revenue declining by 2% year-over-year to $70.9 million. Moreover, billings fell by 3% year-over-year, painting a grim picture for the company’s growth trajectory. Executive leadership changes within the company also raise concerns about continuity and impact on client relationships.
Domo’s challenges extend to its profitability, with pro forma operating margins declining to just 2%. The company’s negative Rule of 40 score, a key performance metric, further underscores the uphill battle Domo faces. Amidst these struggles, it becomes increasingly clear that Domo’s current valuation may not fully capture the risks and uncertainties surrounding its future growth and profitability.
In conclusion, while Domo may appear attractively priced, the company’s underlying challenges and lackluster performance signal a need for caution. As investors weigh their options, the complexities and risks associated with Domo suggest that alternative investment opportunities may offer more promising prospects in the evolving tech landscape.
