Data science is a relatively new field, which Harvard Business Review dubbed “The Sexiest Job of the 21st Century” in 2012. While that is a massive stretch, especially considering fashion modeling has only become more pervasive thanks to Instagram, the future use of data will continue to gain importance.
Domo Inc. (DOMO, Financial) is a provider of a cloud-based business intelligence and real-time data solutions. It went a public on June 29, raising $193 million on its opening day. By the end of that day, the stock closed up big at $27.30, over 30% above its IPO price, only to spend the next month in free fall, and has since rebounded nicely after hitting a low of $15.79.
Volatility brings opportunity
Domo’s main competition, Tableau Software (DATA, Financial), trades at 8.6 times sales, while Domo is priced at just 4.2 times sales. Of course, with most IPOs, all the analysts who have initiated coverage are positive on the stock with outperform ratings virtually across the board.
The question is whether or not Domo will gain a competitive position in the industry. On one hand, Big Data has spurred a revolution in enterprise business intelligence, as companies crave insights above and beyond the IT department that can help produce growth and profits.
Dashboard example
Since inception, Domo has invested over $300 million to build its solutions, capitalizing on this need by developing great internet-based software that supports an impressive client roster from Fortune 100 companies like MasterCard and Danaher to non-profit organizations like Goodwill. Of course, competition in this market will only intensify and durability for Domo will come down to switching costs.
Companies generally don’t want to build and maintain their own technology applications. Some might, but those that don’t will pick a data management solution from a provider like Domo. Once a company is on the Domo platform, collecting, managing and using its data becomes very engaging, similar to social media, and even a part of the day-to-day activities of an entire organization.
Big data, big competition
Many large-scale IT vendors such as IBM, Microsoft, Oracle and SAP have added similar functionality to their product suites. All of these have larger installed bases and greater economies of scale. However, that makes possible acquisitions even more likely if Domo can continue its growth.
Domo did $108.5 million in total revenue in fiscal year 2018, which ended Jan. 31, up 46% year-over-year from $74.5 million. Pre-IPO, the company generated $31.9 million in sales during the three months ending on April 30, 2018, a gain of 32% year-over-year. It has over 1,500 customers, 385 of which are enterprise customers (generating over $1 billion in annual sales), 80% of which is subscription-based.
Yes, it burns a ton of cash, but if growth can continue at 30% year-over-year, by 2025 it’ll be doing north of $700 million in sales. Even at 4x, investors could see a market value north of $3 billion by then.
More importantly, Domo’s founder, CEO and chairman Josh James has been in this position before. James was co-founder and CEO of Omniture, taking that company public in 2006 and facilitating its $1.8 billion sale to Adobe in 2009.
Could he be building Domo with the same end goal in mind? Sure, because data analytics is an add-on service, but only time will tell for sure. Looking out on the tech landscape, Domo is solving a very important problem and will only garner more and more customers.
Disclosure: I am not long/short any stock mentioned in this article.
