Domo Shares Slide as Weak Forecast Offsets Q3 Earnings Beat
The business software firm projects a return to a net loss in the fourth quarter, renewing concerns over its path to sustained profitability amid a challenging market.
Shares of Domo Inc. fell in late trading Thursday after the business analytics software company issued a downbeat forecast for its fourth quarter, overshadowing third-quarter results that surpassed analyst expectations.
The Utah-based company saw its stock dip 2.45% in after-hours trading after projecting it would swing back to a loss in the coming quarter. The guidance reignited investor concerns about the firm's growth trajectory and its ability to achieve consistent profitability in a competitive market where corporate clients are carefully scrutinizing software expenditures.
For its third quarter ended October 31, Domo reported total revenue of $79.7 million, a modest 1% increase from the same period last year. The company posted a non-GAAP break-even result for net loss per share, a significant beat compared to the Zacks Consensus Estimate of a 12-cent loss. However, the positive quarterly performance was entirely eclipsed by the company's forward-looking statements.
Domo said it expects fourth-quarter revenue to be between $79.0 million and $80.0 million, indicating flat to slightly negative sequential growth. More critically, it forecast a non-GAAP net loss per share between $0.05 and $0.09. This projection signals a reversal from the previous quarter's break-even performance and marks a setback in its efforts to build sustainable profits.
The market's reaction reflects the tough environment for enterprise software vendors. Even before the announcement, Domo's stock had fallen over 28% year-to-date, lagging behind a broader rally in the tech sector as investors prioritized profitability and durable growth over marginal revenue gains.
Despite the weak guidance, CEO Josh James struck a cautiously optimistic tone on the company's earnings call. Addressing the outlook, James suggested the company was moving past its most significant challenges with customer retention. "We, at the same time, feel pretty good about looking out over the next 3, 4 quarters in terms of the pacing of where customers are that are at risk," James said, adding, "it feels like we hit the bottom of that, and we're recovering from that."
Wall Street analysts appeared divided on the company's prospects following the report. Some firms, such as TD Cowen and JMP Securities, had reiterated “Buy” or “Market Outperform” ratings ahead of the results, pointing to strategic shifts and a strong pipeline. However, others, like DA Davidson, maintained a “Neutral” rating, reflecting uncertainty about the company's ability to accelerate growth in the current macroeconomic climate.
Domo, which provides a cloud-based platform that helps executives visualize and analyze business data, competes with major players like Microsoft's Power BI and Salesforce's Tableau. The muted forecast suggests that extended sales cycles and tighter client budgets continue to pressure the company as it heads into the end of its fiscal year.