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Domo Looks More Convincing Now

Jun. 09, 2020 2:28 PM ETDomo, Inc. (DOMO)8 Comments
Tech and Growth profile picture
Tech and Growth


  • Domo saw a strong Q1. Revenue grew by 19% despite 9% opex cut, highlighting a solid go-to-market execution and a proven offering.
  • The better-than-expected renewal rates despite the $35 million cost-cutting plan mean there is room for more margin expansion.
  • Domo is fairly priced. We will upgrade the stock to overweight with a price target of $37.


Domo (NASDAQ:DOMO) looks much more convincing today than last August when we covered the stock the first time. Since then, shares price has been up ~36% as fundamentals have improved. The solid growth despite the decrease in cash burn in Q1 is a sign that the company has fully overcome the go-to-market issue. Given the potential upsides this year driven by the margin expansion and the seemingly successful go-to-market revamping, we will upgrade Domo from neutral to overweight.


Expense cut and higher renewal rates should expand margin in the near term. The company will realize over $35 million in expense cuts in 2020, which primarily happens in Q2 and Q4. The company based its $35 million expense cut on the assumption of an 80% renewal rate. Yet, the better-than-expected 85% renewal rate in Q1 indicates that there is room for more cost reductions as the company sees fits going forward. Moreover, the Q1's 79% gross margin that represented an increase from 77% last year was already close to the 80% target, which opens a possibility for a target model upgrade as margin continues to expand.

The solid growth despite the expense cuts demonstrates a strong go-to-market turnaround and proven offering. Having experienced the offering ourselves and seen the overall reviews in Gartner, we have got the impression that the sales execution issue last year was more of a go-to-market problem as opposed to the lack of demand for the offering. The strong execution in Q1 has further validated our thesis. Despite the 9% expense cuts, subscription revenue grew by 23% in Q1, followed by the 13% increase in billings. With that in mind, we believe that the company should not have any issue sustaining this level of growth.

(source: domo.com)

The highlight for the quarter, however, was the visible increase

This article was written by

Tech and Growth profile picture
Former tech operator, entrepreneur, and venture capitalist with over a decade of experience starting, investing, and building companies in Asia and US. Long-only manager seeking multi-asset technology / growth opportunities driving disruptive innovation globally.

Analyst’s Disclosure: I am/we are long DOMO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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