Comparing Domo’s Sales & Marketing Spend With Tableau’s

by Trefis Team
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Competition in the business intelligence and analytics space has become especially fierce in recent years, making it increasingly important for companies in this space to invest extensively in sales and marketing (S&M) to acquire new customers. While established players such as Tableau have managed their marketing expenses over the years, newer players, such as Domo Technologies, are finding it difficult to attract new customers without significant S&M costs.

In this note, we compare Domo’s sales and marketing expenses with Tableau’s to see if the former’s expenses are sustainable in the long run. You can view our forecasts and estimates on our interactive dashboard for Domo and create your own forecasts by altering the base inputs (blue dots).

Domo Technologies is a relatively new player in the business intelligence industry. It allows customers to access real-time data and analytics, stored in different formats and locations, from their smartphones. Its product is largely targeted at CEOs and top management personnel of large enterprises, and accordingly the company has to spend a lot of resources to attract new customers. Consequently, Domo’s sales and marketing expense stood at $131.8 million in 2017, which is more than 120% of its total revenue for the year. This is a major contributor to the company’s significant cash burn, and implies that the company has effectively been buying revenue.

Domo’s S&M expense was $39.6 million in 1Q’18, while it added around 73 new customers during the period. Assuming a 100% retention rate, the customer acquisition cost (CAC) comes out to be more than half a million dollars per customer. Now, with an average revenue per customer (including maintenance & service revenue) of around $70,000 per customer, the company needs to retain a customer for at least 8 years to recover its CAC. Given the cutthroat competition in the BI space, this does not seem reasonable.

In contrast, Tableau, an established player in the BI and analytics market, has efficiently managed its sales and marketing costs over the years. While the company’s S&M expense has grown at more than 50% annually over the last five years, it has remained below 60% of its total revenues. Further, Tableau’s CAC is significantly lower than Domo’s. Tableau’s S&M expense in 1Q’18 was $138.4 million, and it added around 4,000 new customers. This comes out to roughly $35,000 per customer, as opposed to Domo’s figure of around half a million.

Now, it’s important to note that Domo is a newer player in the BI space and has to spend in order to effectively compete with the more established companies – including giants such as SAP and Microsoft. Consequently, it will have to keep spending a lot on S&M in the coming quarters, and maybe even years. The difference is, Domo’s cash position is not nearly as strong as its more established competitors, and its cash burn remains a big concern. Accordingly, we remain skeptical regarding the company’s long-term valuation.

Do not agree with our forecast? Create your own price forecast for Domo by changing the base inputs (blue dots) on our interactive dashboard.

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