Domo Stock: Attacking The $100 Billion Big Data Market (NASDAQ:DOMO)

Domo, Inc. (NASDAQ:DOMO) is a software program firm which presents a number one huge information analytics and visualisation platform. The corporate was based in 2010 and had their IPO in 2018. Since then the inventory had a unstable couple of years earlier than hovering by 158% in 2020, in the course of the progress inventory bull market. Nevertheless, since November 2021 the inventory has had a serious correction down by 64% and now trades at simply 20% greater than its IPO value on the finish of the primary day of buying and selling, $27 per share. Nevertheless, the corporate has elevated their income by 22% in 2021 alone and is buying and selling on the low finish of its historic value to gross sales ratio. The Massive Knowledge Market is forecasted to extend by 47% between 2022 and 2027, reaching $103 billion by the tip of the interval. Domo is poised to learn from this pattern, as an organization which helps enterprises handle and perceive their huge information units. Let’s dive into the enterprise mannequin, financials and valuation for the juicy particulars.

Enterprise Mannequin

Domo Inc gives a number one software program platform which allows a number of information sources to be analysed in a single place and visualised through a single dashboard. It is a game-changer for companies which have a number of information units in numerous “siloed” areas. This might embody Enterprise Intelligence (BI) information, Advertising analytics information, promoting information, provide chain information, market share information and extra. A single unified view allows higher and extra constant resolution making throughout the enterprise with an information backed strategy. Companies can construct and combine their very own information apps and workflows simply, along with accessing “self serve” analytics.

Domo has over 2,200 clients which embody main manufacturers similar to: Ebay, Loreal, Cisco, Zillow, DHL, Unilever, NBA and extra. Loreal name’s Domo their “cockpit” and so they use the platform for managing all their world information sources and assist to find ROI (Return on Funding) for his or her advertising and marketing efforts.

Their enterprise mannequin primarily focuses on subscription companies and they’re on a “path to $1 billion in billings“. They intention to perform this by means of numerous initiatives similar to including 25% extra gross sales reps per 12 months. As well as, to rising their buyer retention price from 88% in 2021 to 92%. In addition they intention to maneuver from “Challenger to Chief” on the Gartner Magic Quadrant, a well-liked benchmark for B2B know-how corporations. Just lately they introduced new integrations with Microsoft 365 and Groups, which ought to enhance the worth proposition provided to customers.

Rising Financials

Domo launched their earnings for the primary quarter of 2022. Whole income got here in at $74.5 million, which was a rise of 24% 12 months over 12 months. Subscription income made up 87% of this and $64.6 million for the primary quarter. Billings got here in at $72.9 million, which represented a 25% enhance 12 months over 12 months.

As a Software program firm, Domo has a really excessive GAAP Gross margin of 83% in line with the prior quarter. Whereas they’re working at a lack of -$88 million within the trailing 12 months, however that is typically resulting from their aggressive investments into each R&D ($81 million) and Gross sales and Advertising ($198 million).

Domo has a robust steadiness sheet with Money and money equivalents of $84.0 million as of April 30, 2022. With just about no curiosity bearing debt. For FY2022, they’re guiding for between $315.0 million to $319.0 million, up ~24% YoY on the low finish of the vary.

Valuation

So as to worth Domo, I’ve plugged the newest monetary information into my superior valuation mannequin which makes use of the discounted money circulation technique of valuation. I’ve forecasted 30% income progress for the subsequent 2 to five years primarily based upon analyst estimates and the rising Massive information market talked about prior.

As well as I’ve forecasted margins to extend to 25% which is barely above the 23% common for the software program trade. To extend the accuracy of the valuation, I’ve capitalised the corporate’s investments into R&D.

Given these components I get a good worth of $10/share, the inventory value is at the moment $32 per share and thus the inventory is overvalued intrinsically. Nevertheless, if we evaluate the inventory’s Worth to gross sales ratio to historic ranges it’s really buying and selling on the low finish of its vary, with a Worth to Gross sales (ahead) ratio = 3.5.

Domo’s competitor platforms embody different enterprise evaluation instruments similar to, Microsoft Energy BI, Tableau Desktop, Qlik Sense, SAP BusinessObjects BI Suite, Sisense Fusion Analytics, MicroStrategy, TIBCO Spotfire, Looker.

The Majority of those are owned by bigger firms for instance, Microsoft BI, SAP and Tableau has now been acquired by Salesforce. Thus a extra helpful comparability for valuation could also be extra SaaS primarily based progress shares. Domo is the 2nd most cost-effective inventory when in comparison with this plethora of corporations with a ahead Worth to Gross sales = 3.5 (Purple line). Barely greater than Teradata Corp which has a Worth to Gross sales Ratio = 2.2.

Dangers

Valuation

Domo is affordable relative to historic multiples and trade friends, nonetheless the inventory is overvalued intrinsically. The market is pricing in a 50% progress price on their income which is greater than analyst expectations and administration’s steering.

Competitors

As talked about prior there are various various enterprise intelligence platforms round. The foremost competitors I at the moment see embody Microsoft BI (Enterprise Intelligence) and likewise Salesforce (which now owns Tableau, an amazing visualisation platform). The excellent news is Domo has a 4.5 ranking by Gartner which is 0.1 level greater than Microsoft BI and Tableau which have 4.4 stars.

Closing Ideas

Domo is an incredible firm, which is attacking the rising $100 billion huge information market alternative. They’re investing aggressively for progress and are rising at a gradual price. The inventory is undervalued relative to historic multiples however have a excessive intrinsic valuation. Given the number of alternatives round proper now given the most important know-how inventory correction (see my different posts), I imagine this inventory is a chief candidate for the one’s watch listing.