Morgan Stanley: Despite Operating Losses, Domo Is A Buy

The cloud business intelligence platform Domo Inc DOMO is showing impressive sales metrics, according to Morgan Stanley. 

The Analyst

Morgan Stanley's Sanjit Singh initiated coverage of Domo with an Overweight rating and $28 price target.

The Thesis

Domo's technology combines data connectivity, data warehousing, data preparation, exploration, collaboration and monitoring and alerting capabilities into one real-time platform, Singh said in the initiation note. (See the analyst's track record here.) 

While it is expensive to build out, the benefits to end users include ease of use on mobile devices with a real-time visibility, the analyst said. Perhaps more importantly, the company is able to offer its technology to a "broad swath" of business users all the way up to the CEO's office.

Domo offers its clients a technology combining "power and simplicity" that cannot be found elsewhere in the competitive landscape, Singh said. By leveraging its key advantage over the competition, the company has seen an 80-percent compounded annual growth rate in enterprise customer revenue over the past four years, the analyst said.

Net retention rates among Domo's largest customers exceed 115 percent, and the top 20 customers increased their annual recurring revenues over nine times compared to the initial purchases, Singh said. 

Domo is operating at a loss: its fiscal 2018 operating margin is estimated at negative 153 percent, the analyst said. But the stock is trading at 2.3 times estimated EV/calendar 2019 sales, which implies a 70-percent discount versus peers and more than accounts for the risk of continued operating losses over the near-term, he said.  

Price Action

Domo shares were down 0.67 percent at $19.17 at the close Tuesday.

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