Will Domo’s (DOMO) recent recovery translate into profitability?

After experiencing weakness in the early days of the pandemic, Domo Inc. (NASDAQ: DOMO) entered the recovery path pretty quickly, bringing cheer to shareholders. But the road ahead doesn’t look very smooth for the company that provides cloud analysis software, thanks to the prolonged losing streak and growing competition.

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Read management/analysts’ comments on quarterly results

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The company, which was founded more than a decade ago, is yet to become profitable, but the market seems to be bullish on its prospects. The sentiment is evident from the steady growth of Domo’s market value, with the stock surging to an all-time high last week. But the relatively high valuation calls for caution as far as investing is concerned, given the elusive turnaround. Still, those willing to take risks wouldn’t want to ignore the stock, which according to experts has good growth potential.

Unique Offering

Domo’s Business Cloud is designed to help enterprises process business intelligence data quickly and effectively. The ability to digitally connect all kinds of organizations and support their employees gives the company an edge over its peers. Also, it has the ability to combine tools like business intelligence, data warehousing, and data discovery in a single platform. That should justify the high retention rate, with most customers preferring to stay back.

The management’s growth strategies include continued expansion of the customer base, increasing the engagement of existing customers, and extending the functionality of the platform. It looks to achieve these goals through the user-centric design, ease of adoption, and enterprise-grade performance. The company now intends to make significant investments in the business, after becoming cash flow positive towards the end of last year.

Competition

Despite the unique business model, Domo is not immune to competition, even as tech biggies like Microsoft (MSFT) and Oracle (Oracle) vie for a bigger slice of the pie in certain segments of the business. Since more entities, including the better-established tech firms, stepping into Domo’s core competency, the struggle for market share would intensify in the coming months.

Cash Flow Positive

In the most recent quarter, revenues climbed 20% annually to $53.6 million, aided by strong customer addition, and topped expectations. Net loss, on an adjusted basis, more than halved to $0.40 per share from $0.85 per share last year. Overall, it was stronger than the outcome analysts had predicted. While the management is optimistic that the improvements would continue in the final months of the year, there is no clarity on achieving profitability.

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For most biz, cloud is more than just a digital transformation engine

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Commenting on the third-quarter performance, Domo’s CEO Josh James said, “I would point out that our recent performance occurred against the backdrop of pretty significant cost reduction this year and a severe economic downturn. Our employee headcount in Q3 was down year over year, yet we’ve continued to grow our recurring revenue with the reduced expenses. We’ve also been relentlessly focused on customer success, which is reflected in our higher retention rates. Going forward, we plan to invest in client services in other areas of our business that directly support our ability to serve and grow existing accounts.”

At the Bourses

Shares of Domo gained about 68% last month alone, recovering from the recent pull-back. Having stabilized near the peak, the shares closed the last trading session at $72.61, up 3%. The value has nearly tripled in the past twelve months.