Shares of cloud software company Domo (NASDAQ:DOMO) crashed nearly 40% on Friday as several Wall Street firms noted the company is going through some difficulties after the company cut its fiscal 2024 guidance.
T.D. Cowen analyst Derrick Wood downgraded his rating on Domo (DOMO) shares to market perform from outperform and cut his price target to $14 from $20, noting that the company is dealing with tougher macro conditions that are negatively impacting its pipeline conversion. Additionally, it’s also dealing with tougher competition that is impacting renewals, including a “handful” of larger customer that are expected to leave.
Wood said he believes the competition with Microsoft (MSFT) is “getting tougher.”
Morgan Stanley analyst Sanjit Singh kept his equal-weight rating but cut his price target to $15 from $16, noting that the company looks to be on “the wrong side of vendor consolidation efforts.”
“In particular, with the majority of customers on seat-based pricing, Domo appears disadvantaged against multi-product rivals (such as Microsoft) who see more broad-based, enterprise-wide adoption due to bundling of their business intelligence solution in larger ELA agreements,” Singh wrote in an investor note.
Singh added that the company is responding by accelerating the transition to consumption-based pricing, while also cutting back on expenses and discretionary investments to ensure profitability and being free cash flow positive.
“In our view, while guidance now looks conservative and valuation is undemanding at ~1.5x [calendar 2024] sales, we think headwinds from the macro and the transition to a consumption,” Singh explained.
Domo (DOMO) now expects revenue for fiscal 2024 to be between $316M and $320M, below the consensus estimate of $325.53M. On an adjusted basis, it expects to lose between 39 and 47 cents per share, below the expected adjusted loss of 36 cents per share.
Analysts are largely bearish on Domo (DOMO). It has a SELL rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha’s quant system, which consistently beats the market, rates DOMO a HOLD.