How Will Domo’s Revenues Trend Over The Coming Years?

Domo Technologies has attracted a lot of scrutiny over recent weeks for its relatively weak financial condition as it heads into an IPO. The concerns raised by potential investors range from the visible dip in Domo’s revenue growth over recent quarters to the rapid growth in its expenses (especially sales & marketing costs) to the dual-class stock structure that leaves common shareholders with almost no say in the company’s operations. While the company has attempted to make its shares more attractive to potential investors by slashing its valuation by as much as 75%, the single biggest issue remains Domo’s critically low cash balance. Assuming that it manages to raise some cash through an IPO in the near future, Domo will have to work hard to achieve continued revenue growth while reining in costs to avoid another cash crunch soon.

But how quickly can Domo grow its top line over coming years? We answer this question in our interactive  dashboard forecasting Domo’s revenues and expenses over the next five years. We summarize our forecasts for Domo below.

Domo’s key source of revenues is the annual subscription fee it generates from new and existing customers. Additionally, the company generates revenues in the form of professional services fees related to setting up customers’ data sources to use the Domo platform.

Forecasting Subscription Revenue

We forecast Domo’s subscription revenues by estimating growth trends in two underlying drivers:

• Number of Customers: This is the total number of paying customers for Domo at the end of a given year. Domo’s aggressive sales push has helped its customer base increase from 1,199 in 2016 to 1,521 in 2017 (an increase of 27%). Going forward, we expect the customer base to grow at a rate of roughly 20% annually – helping the figure reach 3,350 by the end of 2022.
• Subscription Revenue per Customer: We arrive at this metric by dividing Domo’s subscription revenues for a year by the number of paying customers at the end of that year. The company’s average subscription revenue per customer has increased from around $49k in 2016 to about $57.5k in 2017, thanks to its targeted focus on large enterprises. As Domo bills customers annually based on the number of users accessing its platform, this strategy has yielded higher revenue per customer. We expect the company to stick to this growth strategy going forward – allowing it to report sequential growth in subscription revenues per customer despite its recent decision to cut per-user fees in response to competitive pressure. The subscription revenue per customer could, therefore, reach $80,000 by the year 2022.

As shown above, this represents an increase in subscription revenues for Domo from $87.5 million in 2017 to $268 million in 2022. This represents a CAGR of 25% over the five-year period.

Forecasting Professional Services & Other Revenues

As these revenues are directly linked to Domo’s subscription revenues, we estimate their growth using the following metric:

• Other Revenues as % of Subscription Revenues: Non-subscription revenues have fallen from 27% of subscription revenues in 2016 to 24% in 2017, and we expect the figure to decline to around 17% by 2022. As subscription revenues are expected to witness strong growth, this implies an increase in professional services and other revenues from $21.1 million in 2017 to $45.6 million in 2022 at an annual growth rate of almost 18%.

Taken together, we forecast Domo’s total revenues to almost triple from $108.5 million in 2017 to $313.6 million by 2022 – representing a CAGR of 23.5%. While this is a strong revenue growth trajectory, it will be accompanied by substantial expenses, especially given the fierce competition in the business intelligence space. So how are Domo’s expenses likely to grow over the next five years? And will the company break even any time soon? We will answer these questions in subsequent notes.

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