Day: March 18, 2023

Domo (NASDAQ:DOMO) is a knowledge analytics software program firm that was named as a “challenger” by Gartner. Traditionally, organizations have struggled with siloed datasets that couldn’t be simply visualized. Domo solves this challenge by providing a unified view of all information from a number of sources. Given the “huge information” business is forecast to develop at an 11% compounded annual development charge up till 2026, the corporate is poised to learn from this development. Domo has already reported a prime and backside line beat for the fourth quarter of the fiscal 12 months of 2023, which is a optimistic signal. On this submit, I’m going to interrupt down its fourth quarter outcomes, earlier than revealing my valuation mannequin and forecasts for DOMO inventory. Let’s dive in.

Monetary Rebound?

Domo reported strong monetary outcomes for the fourth quarter of FY 2023. Its income was $79.62 million which beat analyst forecasts by $2.15 million and elevated by ~14% 12 months over 12 months.

Domo was beforehand categorized as a “excessive development” enterprise and achieved development charges of between 20% and 40%, between the years of 2018 and 2021. As a way to assist get the corporate again on monitor, its founder (Josh James) has been reappointed because the CEO.

The gorgeous factor about Domo’s enterprise is it makes the bulk (88%) of its income from subscription providers, which provides some consistency to the highest line. Its subscription income expanded by 18% 12 months over 12 months to $70.Three million, which was optimistic. The one adverse actually was a 3% decline in billings to $104.5 million. These metrics look to have been barely impacted by the macroeconomic atmosphere which has brought on longer gross sales cycles.

A optimistic is its present RPO or Remaining Efficiency Obligations elevated by 10% 12 months over 12 months to $234.eight million. As well as, its complete RPO elevated by 12% 12 months over 12 months to $378.2 million. Typically, after we see quicker ARR development than RPO, that may point out the signing of multi-year contracts, which administration confirmed on the earnings name.

In truth, Domo reported a staggering 65% of its clients are in multi-year contracts, up from 62% within the prior 12 months. The signing of multi-year contracts is a particularly optimistic signal given the powerful financial backdrop.

Its gross retention charge did dip by 1% 12 months over 12 months to 89%, however its internet retention charge was nonetheless over 100%, which was optimistic, because it means nearly all of clients are sticking with the product on an equal spend foundation.

Margins and Stability Sheet

Transferring onto profitability, the corporate reported earnings per share [EPS] of adverse $0.57, which beat analyst forecasts by $0.03. This was pushed by working earnings enchancment from a lack of $30.1 million in This fall FY22 to a lack of $16.2 million by This fall FY23. The gorgeous factor a couple of software program firm is it inherently has excessive working leverage constructed into its enterprise mannequin. The corporate has a powerful steadiness sheet with $66.5 million in money and money equivalents. The corporate has pretty excessive complete debt of $128.eight million however the majority $108.6 million is long-term debt.

Valuation and Forecasts

As a way to worth Domo, I’ve plugged its newest monetary information into my discounted money circulate valuation mannequin. I’ve forecast 6% income development for “subsequent 12 months” or FY24 in my mannequin. That is primarily based upon administration’s conservative forecast of between 5% and seven% income development or between $323 million and $330 million for the total 12 months. Consider, that is considerably decrease than the 14% income development achieved in Q4FY23, 12 months over 12 months. In years 2 to five, I’ve forecast barely greater than this development charge with 16% per 12 months forecast. I count on this to be pushed by improved macroeconomic situations, in addition to administration adjustments and realignment.

To extend the accuracy of my mannequin, I’ve capitalized R&D bills which has boosted internet earnings. I’ve forecast a 1% working margin for “subsequent 12 months” or FY24. That is primarily based upon administration’s forecast of a “barely optimistic” working margin for the total 12 months. Over the subsequent 10 years, I’ve forecast working enlargement development to 20%, which is beneath the 23% common of firms within the software program business.

Given these elements, I get a good worth of ~$28 per share, the inventory is buying and selling at ~$12 per share on the time of writing, thus it’s over 55% undervalued.

As an additional information level, Domo trades at a price-to-sales [P/S] ratio = 1.237, which is over 71% cheaper than its 5-year common.

Dangers

Money Burn/Share Answer

If we theoretically forecast that the enterprise continues to make the identical lack of $16.2 million in This fall ’22 shifting ahead, we are able to estimate when its money on the steadiness sheet would run out. On this case, if we do $66.5 million divided by $16.2 million, the corporate has simply over four quarters or one 12 months’s price of money left at its present burn charge. After which the corporate could need to challenge extra shares, which might dilute shareholders or tackle extra debt. This can be a threat with the enterprise; nonetheless, a optimistic is administration has forecast a barely optimistic working margin for the total 12 months of FY24.

Ultimate Ideas

Domo is a number one information analytics firm that’s poised to learn from the expansion in “huge information” and the cloud. The enterprise has confronted a lot of challenges from the macroeconomic atmosphere which has brought on slowing development within the enterprise. A optimistic is Domo reported a powerful quarter, beating prime and bottom-line development estimates. As well as, the return of its founder as CEO ought to assist to set a brand new trajectory for the corporate. Given my valuation mannequin and forecasts point out the inventory is undervalued intrinsically on the time of writing, it may very well be an incredible long-term funding.