As your trusted analyst, I’m here to break down Domo’s latest earnings report for the third fiscal quarter of 2025. This report offers a mixed picture, showing some operational improvements alongside significant profitability challenges. We’ll dive into what these numbers truly mean for you as an investor.
Our analysis suggests that while the company is making strides in cash generation, its core growth and earnings performance are lagging. This quarter demands a careful look at both the positives and the persistent hurdles Domo faces in a competitive software market.
What Happened This Quarter: The Big Picture
Domo, a cloud-based AI and data products platform, reported revenue of $79.7 million, showing a modest 1.7% growth compared to last year. This growth rate is a key concern for a software company in a dynamic industry. More significantly, the company posted a net loss of $22.9 million, resulting in an earnings per share (EPS) of -$1.95, which was a substantial miss against analyst estimates of -$0.40.
Despite these headline losses, there’s a silver lining: Domo managed to generate positive free cash flow of $1.0 million for the quarter. This indicates some underlying operational efficiency, even as the company continues to struggle with overall profitability. We need to understand both sides of this story.
Breaking Down the Financial Results
Let’s walk through the key numbers together to get a clearer picture. These figures help us understand the company’s financial health and operational execution during the quarter.
Revenue: Where the Money Came From
Domo reported total revenue of $79.7 million for the quarter, a slight increase of 1.7% year-over-year. For a software-as-a-service (SaaS) company, this growth is quite modest and signals potential challenges in expanding its customer base or increasing spending from existing clients. We believe this slow growth rate is a critical metric for investors to watch closely.
The company’s platform, which connects data, systems, and people, operates in a competitive landscape where faster growth is often expected. This modest increase suggests that Domo might be facing headwinds in market share expansion or broader economic pressures affecting enterprise spending on data solutions. Understanding the drivers behind this tempered growth is crucial for future outlook.
Profit and Margins: Is the Company Making Money Efficiently?
Domo achieved a strong gross profit of $59.6 million, translating to an impressive gross margin of 74.82%. This indicates that the company is very efficient at delivering its core service once a customer is acquired. However, the problem lies further down the income statement.
Operating expenses totaled $66.9 million, significantly outweighing the gross profit. This led to an operating loss of $7.25 million, or a negative operating margin of -9.10%. The company’s net income landed at a loss of $22.9 million, resulting in a diluted EPS of -$1.95, a substantial miss compared to analyst expectations of -$0.40. This wide gap highlights ongoing struggles with cost management relative to revenue.
Cash and Debt: Financial Health Check
Looking at the balance sheet, Domo holds $47.1 million in cash and equivalents. While this provides some liquidity, it’s juxtaposed against total debt of $140.8 million. This level of debt, combined with negative stockholders’ equity of -$191.4 million, suggests a stretched financial position.
The company’s working capital is also negative at -$129.0 million, which can sometimes signal short-term liquidity challenges. We view these balance sheet metrics as areas of concern that warrant close monitoring by investors. A strong balance sheet is crucial for sustained growth and resilience.
Cash Flow: Follow the Money
Despite the net losses, Domo generated positive operating cash flow of $3.37 million this quarter. This is a positive sign, as it shows the core business is producing cash before accounting for non-cash expenses like depreciation and stock-based compensation. We always like to see positive cash from operations.
After factoring in capital expenditures of -$2.35 million, the company reported a positive free cash flow of $1.02 million. This is a bright spot in the report, indicating that Domo is funding its basic operations and some growth investments without needing to raise additional debt or equity for the quarter. It suggests some underlying business strength in managing cash.
Comparing to Last Year: Growth Trends
Let’s put this quarter’s performance into a broader context by looking at year-over-year trends. Domo’s revenue grew a modest 1.7% compared to the same period last year, reaching $79.7 million. This slow growth rate is a consistent theme that needs addressing within the company’s strategy.
On the profitability front, the actual EPS of -$1.95 represents a significant deviation from what analysts were expecting for the quarter (-$0.40). This large miss is a clear indicator that the company’s path to consistent profitability remains challenging, even as revenue inches up. Investors should pay close attention to management’s plans for improving the bottom line.
Quarter-to-Quarter Momentum
While we don’t have explicit prior-quarter data, the modest 1.7% year-over-year revenue growth suggests a business that is not accelerating rapidly. The substantial EPS miss also indicates that profitability momentum is moving in the wrong direction relative to expectations.
In the software industry, strong sequential growth is often a hallmark of a thriving business. Domo’s current performance implies a more measured pace, and we’ll be looking for signs of re-acceleration in future reports. Investors should watch for any commentary on sales pipeline and customer acquisition trends.
Business Segments: What’s Working and What’s Not
Domo operates predominantly as a single segment, focusing on its cloud-based modern AI and data products platform. Therefore, we don’t have specific breakdowns of performance by different product lines or services within the platform.
Cloud-Based AI and Data Products Platform
The overall performance of the platform, as reflected in the total revenue, indicates steady but slow growth. The strong gross margin suggests the core technology and service delivery are efficient. However, the heavy operating expenses, particularly in sales and marketing, are consuming a large portion of this gross profit.
Our outlook for this segment hinges on Domo’s ability to demonstrate increased customer acquisition and higher average revenue per user (ARPU) in the coming quarters. Without significant acceleration here, the current revenue growth rate will continue to be a limiting factor for overall profitability. We need to see more leverage from their sales efforts.
What Management Is Saying: Forward Guidance
While specific forward guidance for EPS or revenue was not explicitly detailed, management commentary typically focuses on strategic priorities. Given the results, we anticipate management will emphasize cost efficiency, driving higher-value customer engagements, and potentially enhancing product innovation.
We believe management will need to articulate a clearer path to sustainable profitability and revenue acceleration. Investors will want to hear how the company plans to close the gap between its strong gross margins and its persistent operating losses. Our confidence in future performance will depend on actionable plans rather than broad statements.
What Wall Street Thinks: Analyst Views
Despite the significant EPS miss, Wall Street analysts maintain a generally optimistic stance on Domo. Out of six analysts covering the stock, four recommend a “Buy” and two suggest a “Hold.” The consensus target price is $18.17, with a high target of $21.00 and a low of $13.00.
This positive sentiment seems to look past the immediate profitability challenges, potentially focusing on the company’s long-term potential in the data and AI space. We find this divergence between the analyst consensus and the actual earnings performance noteworthy. Investors should critically assess if the long-term potential outweighs the current operational hurdles.
Valuation: Is the Stock Cheap or Expensive?
Domo’s current market capitalization stands at approximately $482.8 million. Given the company’s negative earnings, traditional trailing P/E ratios are not applicable, and its forward P/E is also negative at -29.27. This highlights the ongoing challenge with profitability.
The Price-to-Sales (P/S) ratio is about 1.52, and its Enterprise Value (EV) to Revenue is 1.81. These revenue multiples suggest that the market is valuing Domo based on its top-line potential rather than current profits. However, the negative Price-to-Book ratio of -2.52, due to negative stockholders’ equity, is a stark reminder of the company’s accumulated losses. Based on current market data from DOMO stock quote and financial data on Yahoo Finance, the stock is trading around $11.71, indicating that investors are still anticipating future turnaround.
Our verdict is that Domo’s valuation is complex; it’s not cheap on a profitability basis, but its revenue multiples could be considered reasonable for a growing software company, albeit one with slow growth. Investors need to weigh the future potential against the current financial weaknesses.
My Bottom Line: What This Means for Investors
Here’s my summary of what this quarter’s results mean for you as an investor:
- Revenue Growth is Stalling: A mere 1.7% year-over-year revenue growth is insufficient for a software company in a high-growth market. This tells us Domo needs to find new avenues for expansion or improve its sales efficiency significantly.
- Significant Profitability Challenges Persist: The large EPS miss and persistent operating losses are a major red flag. Despite a strong gross margin, the company struggles to control its operating expenses, particularly sales and marketing.
- Positive Free Cash Flow is a Silver Lining: Generating $1.0 million in free cash flow is a positive development, indicating that the business can cover its basic operations and some investment without external funding for now. This shows some operational discipline.
- Weak Balance Sheet Demands Attention: Negative stockholders’ equity and substantial debt indicate financial fragility. This limits the company’s flexibility for future investments or weathering economic downturns.
- Overall Verdict: Cautious Optimism with Major Caveats: While the positive cash flow and analyst optimism offer some hope, Domo must demonstrate accelerated revenue growth and a clear path to profitability. We believe investors should approach DOMO with caution, focusing on management’s ability to execute a turnaround in the coming quarters.
Risks You Should Watch
Every investment carries risk, and Domo is no exception. Here are the key risks we believe you should monitor closely:
- Rapid Technological Change and Innovation Pressure: The software industry evolves quickly, demanding constant innovation. Domo faces pressure to continuously update its AI and data platform to remain competitive, which requires significant R&D investment. If they fall behind, market share could erode quickly.
- Intense Competition from Established and Emerging Players: Domo operates against formidable competitors, including large tech giants and nimble startups. This intense competition can pressure pricing, limit market share gains, and increase sales and marketing expenses, directly impacting profitability.
- Macroeconomic Uncertainty and Recession Risk: Enterprise spending on new software and data solutions can be cyclical. A downturn in the broader economy could lead to reduced customer budgets, longer sales cycles, and increased churn, impacting Domo’s revenue growth.
- Cybersecurity Threats and Data Privacy Concerns: As a data platform, Domo handles sensitive customer information. Any significant cybersecurity breach or failure to comply with evolving data privacy regulations could severely damage its reputation, lead to financial penalties, and result in customer attrition.
Despite these risks, the long-term potential of the AI and data analytics market is significant. However, Domo needs to prove its execution capabilities to capitalize on this opportunity. Investors should carefully weigh these risks against the company’s potential. For more detailed financial insights, you can review Domo’s SEC 10-Q filings directly.
Frequently Asked Questions (FAQ)
Question 1: What were the most critical takeaways from Domo’s Q3 FY2025 earnings report?
The most critical takeaways are the modest 1.7% year-over-year revenue growth and the substantial EPS miss of -$1.95 against analyst estimates of -$0.40. While the company achieved positive free cash flow of $1.0 million, the persistent operating losses and weak balance sheet remain significant concerns for investors.
Question 2: Why did Domo’s EPS miss so badly, despite a strong gross margin?
Domo’s strong gross margin of 74.82% indicates efficient service delivery, but the company’s operating expenses, particularly in sales and marketing, are very high relative to its revenue. These high costs led to an operating loss and ultimately contributed to the significant net loss and EPS miss. Effective cost control remains a challenge.
Question 3: Is the positive free cash flow a sign of a turnaround for Domo?
The positive free cash flow of $1.0 million is indeed a positive signal, showing that Domo is generating cash from its operations and covering its capital expenditures. While it’s not a full turnaround, it suggests improved operational efficiency in managing cash. However, sustainable profitability and accelerated revenue growth are still needed for a complete turnaround.
Question 4: What are the biggest financial risks facing Domo right now?
Domo faces several significant financial risks. These include its weak balance sheet with negative stockholders’ equity and substantial debt, which limits financial flexibility. Furthermore, intense competition and the need for continuous innovation in a rapidly changing tech landscape pose ongoing threats to revenue growth and profitability.
Question 5: Should investors consider buying Domo stock based on this report?
Our analysis suggests a cautious approach. While analyst sentiment is somewhat positive, the actual financial performance, particularly the slow revenue growth and large EPS miss, raises significant concerns. Investors should consider if the long-term potential of the data and AI market outweighs Domo’s current profitability struggles and balance sheet weaknesses.
Question 6: How does Domo’s revenue growth compare to its competitors in the software industry?
Domo’s 1.7% year-over-year revenue growth is relatively modest compared to many peers in the software and data analytics industry, where double-digit growth rates are often expected. This suggests that Domo may be losing market share or struggling to scale its customer base as effectively as some competitors. We need to see this growth accelerate.