Domo founder declares IPO a success, downplays cash burn concerns
- 25 March, 2019 05:00
Josh James (Domo)
Domo has had mixed fortunes since it went public in June 2018. The business intelligence (BI) software vendor surpassed analyst expectations in its most recent financial results, but has maintained a burn rate that led Bloomberg to dub it "the poster child for Silicon Valley excess".
Critics often point to Domo's annual conference, Domopalooza, as a symbol of the company's lavish spending.
The Salt Lake City extravaganza adds a touch of glamour to the world of BI through concerts from chart-toppers such as Macklemore, speeches from the likes of NBA legend Earvin "Magic" Johnson and skiing in the surrounding Utah Wasatch Mountains. The fun attracts attention, but comes at a high cost.
Domo founder and CEO Josh James began his keynote last year with a group of dancing ninjas. This time he arrived on the Salt Lake Convention Center stage in his native Utah clad in a more sombre grey suit, but investors hoping the entrance will herald a more restrained approach would have been disappointed by his opening words.
"Some people don't like the Domopalooza component - people in my finance group, people in my legal group," he said at the start of his keynote. "They're like, 'maybe we shouldn't have special guest speakers. Maybe we shouldn't have artists.'
"But it's Domopalooza. Good thing I named it that a long time ago, because it's not a debate anymore. We're going to make it business in the front, party in the back. I come from the seventies - so let's rock and roll!"
Recent financial results might explain his defiance. Stock in Domo jumped 21 per cent on the previous Thursday after the company announced revenues of US$39.4 million for the fourth quarter of 2019, surpassing Wall Street predictions of US$37.75 million.
Total revenues for the year were up 31 per cent to US$142.5 million and Domo expects them to grow by around 22 per cent in 2020.
Domo also cut net losses from US$39 million to US$25 million, or US$0.94 per share, US$0.30 less than the average analyst predictions of US$1.24 per share.
James believes the results justify the decision to go public last June. At the time, a number of analysts warned investors to keep away due to the the CEO's voting control and a cash burn that was building up a big deficit.
"It was somewhat painful," James admitted. "But it was an important step for us to be able to go out and raise the last amount of money that we needed in order to get to profitability.
"We wanted to make sure we got that last bit of funding so that all of you felt confident and all the customers felt confident that this is the platform that you can bet your business on, and we were able to raise enough money to ensure that we could get to profitability.
"Even though we continue to invest aggressively, the model's working and we have enough cash to get to profitability with what we have right now."
New sales strategy paying off?
Another key factor behind Domo's rising revenues is a new sales strategy that targets larger enterprise customers.
The impact was made clear in the last quarter results, which showed the number of Domo customers with over US$1 billion in annual revenue had risen by 19 per cent year-on-year to 447 of the total of 1,500 organisations that use the software.
These businesses generate big bucks for Domo. James revealed in the earnings call that around 80 per cent of the company's annual recurring revenues is comprised of customers paying more than US$50,000 in yearly subscriptions.
Domo hopes to attract further enterprise customers by rapidly expanding the platform. At Domopalooza, James announced a series of new machine learning-powered features.
To help organisations act on insights more quickly, Domo has launched the Business Automation Engine, an orchestration layer that works across data, systems and people to send individual employees suggested actions directly to their phones.
Analytics tool Mr Roboto has been bolstered by the addition of 'Did You Know', a new tool that surfaces automated insights tailored to each user, who can further refine that personalisation by providing feedback on the signals.
The Domo Data Science Suite has also been upgraded. It now integrates with the popular Jupyter notebook, allowing data scientists to use all their Domo datasets in the coding collaboration tool, and with Amazon SageMaker, which enables them to apply models and insights found through Sagemaker directly in Domo.
James claimed that Domo had finally finished creating its "digital transformation platform" after ploughing US$400 million into developing the product.
"When you put US$400 million of R&D into a product, you expect a much much larger company to come out of it than we are right now," he admitted. "And that's what we expect and that's what we're excited about."
Any celebrations over Domo's revenue growth will remain subdued until Domo addresses the burn that has created a big deficit.
The recent financial reports suggest that's now underway. James revealed that the company was cutting personnel and marketing costs, which helped reduce operating expenses by 11 per cent.
If that was a harbinger of more frugal times, the swinging cuts are yet to fall on Domopalooza.
Before the opening keynote had closed, the stage had been taken over by robot dancers on stilts, acrobats hanging on fabric attached to the ceiling, an arsenal of t-shirt cannons launching swag into the crowd, and an NFL Superbowl-winning quarterback throwing footballs to fans.
Investors will hope that James lives up to his pledge to keep the business in the front but will likely want the party pushed further into the distance.