We tend to get a lot of questions when there’s a new Paul Mampilly ad pounding the pavement, presumably because Banyan Hill tries so hard to reach pretty much everyone who has a pulse and an email address (with the latter being far more important than the former), so we’ll jump in on this Monday morning and check out the latest pitch for his Extreme Fortunes newsletter (which at $2,995/yr is both expensive and high-risk, since no refunds are offered either on the initial payment or on the auto-renewals).
It’s a blessedly short tease, particularly if you don’t then go on to listen to the “wealth summit” presentation that tries to seal the deal… these are the clues we get from the email ad:
“I’m outlining my research on a unique opportunity I’ve spotted in the tech markets — one I’ve been waiting to enter for almost a year.
“And now, the perfect buy situation is here.
“I anticipate this unique company could soon see a surge more than a 15-fold surge in the months ahead — all by gaining a new, powerful foothold in the Internet of Things revolution.”
OK, so a 15-fold surge is, of course, ridiculous… particularly when attached to the term “months.” Yes, the lawyers let you get away with it because “months” doesn’t really mean anything, he could be thinking of 120 months… but the implication, of course, is that you’ll be diving into Scrooge McDuck’s Money Bin by the time the leaf peepers bring their traffic jams back to us in New England.
So before you think about this secret company, get that 1,500% return in “months” out of your head.
OK, ready to think rationally? Let’s check the other clues… we hear about a few of their customers:
“By leveraging its business intelligence software, this firm grew across the board into the servers of DHL, T-Mobile, eBay, National Geographic, Traeger and countless others.”
And get some metrics:
“The company’s revenue has grown 30% year over year … and is expected to jump 188% within the next two years.”
There’s even a little chart, indicating that they had $108.5 million in revenue last year and will have $142.5 million this year — that 188% number must be from the projected $214.4 million for 2021 (though that would be 188% growth from 2017 to 2021, $74.5 million to $214.4 million… which is close to accurate but isn’t close to two years).
What other clues? We’re told that they’re “based out of Utah” and that they have a bunch of institutional investors (AIG, Blackrock, NY State Commission Retirement Fund), and that it “deserved” to explode after its IPO but that the stock “never got underway” at that time.
And, of course, there’s a desperate timeline… the “urgent buy” goes out to his “most trusted readers” on Wednesday, so you must subscribe by midnight on Tuesday to get the info.
Or, of course, you could just read a couple more paragraphs, see the Thinkolator’s answer, and think for yourself. That won’t cost you $2,995, and hopefully won’t bias you too terribly about the stock’s future potential and cause any other rash action (though committing $3k to a newsletter sight unseen, with no hope of a refund, is pretty rash in itself).
So what’s that “secret” stock? Well, based on those clues the Thinkolator points us directly at Domo (DOMO).
What does Domo do? They offer a cloud-based business intelligence system — an integrated “dashboard” that pulls together business data for users. Here’s how they describe their mission:
“It started with highly respected, highly frustrated executives who felt locked out of their own business data. And when you get that much talent and experience focused on one problem—making data more accessible to business leaders—you get a phenomenal solution.
“The sum of Domo’s parts deliver a virtuous cycle of business optimization. Everyone knows more, works together better, and gets more done, faster.”
And yes, all those clues match perfectly — though the fiscal year is an odd one, so their FY 2019 is already in the books and they’ll be starting the second quarter of their 2020 fiscal year in about a week.
The IoT part of the story is a new one, though it does exist — they just released their “IoT Cloud” and a set of apps that help integrate IoT data into the dashboard/business intelligence system. That’s part of the latest update to their services, including their new “business automation engine”, all released at their “Domopalooza” annual conference last month.
I don’t know whether it’s those new product releases or the revenue growth that convinced Paul Mampilly to recommend the shares (or something else), but it is a recent IPO that spent its first months faltering and has not yet completed a full year as a public company — it went public last June and the shares popped immediately from the $21 IPO price to $27 (despite some controversial “red flags”), but they dropped immediately into the teens after that and didn’t get back above $27 until February.
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There are a lot of “big data” and analytics companies out there, with more coming, and I don’t know a lot about which might have better products than others. The idea of “gathering all of a company’s data so we can use it more quickly and intelligently” is not new, of course, but I suppose Domo could do well if they’re providing a service that’s better than everyone else’s.
It will take some time to see if it’s going to work out for them — they are nowhere near being profitable, and they are still spending like crazy. Domo just had its first quarter ever where they spent less on Selling, General and Administrative costs (that’s sales and marketing plus overhead, pretty much) than they brought in in sales — and that’s all because of sales growth. The preliminary indication during this first year of public life is that they do have some scalability — their R&D costs, selling costs, and cost of goods have not climbed noticeably in the past year, while their revenue has grown by 30%, so as of the last year (their fiscal year ending in January) they are only burning through $1 in cash for every dollar in sales (meaning that it costs then $2 to make $1 in sales).
Analysts have some optimism — they think it might only cost them $1.50 to generate each dollar in revenue this year instead of $2, and that if the revenue hits $264 million in three years they could be breaking even… and as a subscription service provider their actual revenues will lag the expenses by a bit (if they sell a subscription they don’t recognize that revenue immediately, it trickles in through the subscription term). So it’s not hopeless, it’s just risky and dependent on them capturing more customers and maintaining pricing power.
If the analysts are on target that means the company has almost enough cash ($175 million or so) to get to break-even, but presumably they wouldn’t want to get that close to the bone (tech companies generally hate to run low on cash, and Domo even has $100 million in debt on its books that they used to get them through to the IPO), so they’ll be doing a secondary offering at some point. If I were their banker I’d probably suggest they do it now, when there’s a good deal of enthusiasm following their last earnings report and their “Domopalooza” product introductions, but that’s just from my cursory glance at the financials.
And yes, there is plenty of enthusiasm for cloud stocks in general, and for “big data” and data integration stocks particularly. Domo’s product offerings look and sound a lot like Tableau’s (DATA) to me, and there’s probably some overlap with other data visualization companies as well, though Domo’s claims about the ability to monitor your company and act on artificial intelligence-generated suggestions from your phone might be more assertive than others (Tableau was the first huge “visualization” company, they has some major disappointments along the way but are now a $10 billion company.
If you’d like to read some of the other commentary, Domo and some near-peers were featured in Investors Business Daily a couple weeks ago, and a Motley Fool writer was very excited about their latest quarterly results and growth potential and thought it “looked cheap” at $43 last month.
Personally, after a few minutes browsing the other business intelligence platforms available, from older leading firms like Tableau and Qlik (which was bought out a while ago) to lesser-known products like Clearstory, Datameer, Pyramid Analytics, birst/Infor, Zoomdata, Looker and GoodData, just to name a few, I can’t easily explain why Domo is clearly better or has more potential (there are a bunch that are specific to one kind of business, too, like Altair for higher-performance computing or New Relic for software development).
It’s growing pretty fast, with revenue growth in the 30% neighborhood, but the 10X larger Tableau is growing faster still, and there’s so much money floating around in venture capital world that all the startups who can post revenue growth are getting money thrown at them.
The valuations all around Cloud-world are nutty, of course, so I can see why someone could claim that there’s a possibility for DOMO to triple if enthusiasm picks up, just because there are plenty of unprofitable cloud companies and “big data” companies that trade at 10-20X sales, while DOMO trades at only 5X sales… but for such a small company, the revenue growth is not impressive enough to convince me that they’re taking share or making a big impact. That means I’d have to actually understand the company’s products really well to convince myself to buy shares, or know that there’s a good chance for them to take market share and grow faster than expected in the next few years or get bought out by Tableau or Microsoft or someone else with deeper pockets… so, since I haven’t taken the time to make those qualitative assessments, I’ll pass on this one for now.
I can’t be too dismissive of the idea just on valuation — I’ve bought plenty of “cloud” companies at much richer valuations in the past, including some that I still own like The Trade Desk (TTD), Shopify (SHOP) and Okta (OKTA), but in those cases I felt I had a better understanding of the size of the end market and the competitive landscape. “Nutty valuations” can be rationalized for the right stock, but make sure to understand why the companies you’re buying deserve to trade at a lofty price… and make sure to keep position sizing and diversification in mind when there’s one class of stocks like this that are popular and fun to own. If something happens to decimate all the high-priced cloud stocks at once, as happens from time to time, you don’t want to see your portfolio disappear.
It’s your money that matters, though, and you might well know a lot more about this industry than I do… and certainly these kinds of business-to-business cloud services stocks have sometimes done extremely well in the past, so feel free to let us know what you think — expect great things from DOMO in the year to come? Believe Paul Mampilly’s attention will drive the stock higher this week? Think they’ll grow to a richer valuation as they get to be better-known? Let us know with a comment below.
Disclosure: I own shares of The Trade Desk, Shopify and Okta among the stocks mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.