The furor that greeted Domo when it filed its S1 does not surprise me. In 2016, I called the company out over a variety of topics that didn't stack up.
On Monday, the company reacted to some of the earlier criticism about self-dealing in relation to a private jet and some catering costs that emerged in the company's initial S1 filing. In the revised S1, the company knocked those elements on the head. But then it stunned financial observers by also announcing an IPO price range that values the business at about a quarter of the widely touted $2 billion valuation mentioned over two years ago.
What on earth is going on?
When the initial S1 was published, Dave Kellogg, CEO Host Analytics and with a fair sized dog in this particular fight, ran a masterful Domo S1 takedown that has been widely circulated. That analysis focused on a variety of metrics including a cute Hype Factor calculation which, as you might expect, had Domo failing on all measures. Check out Kellogg's story. He is biased but went to the trouble of going through plenty of detail in a reasonably fair manner.
Kellogg's conclusion is also a fair assessment of what any reasonably informed investor operating in the Silicon Valley maelstrom might surmise:
Domo is not “hot” because they have some huge business blossoming out from underneath them. They are “hot” because they have raised and spent an enormous amount of money to get on your radar.
Will they pull off they IPO? There’s a lot not to like: the huge losses, the relatively slow growth, the non-enterprise retention rates, the presumably high CAC, the $12M in FY18 churn, and the 40x voting rights, just for starters.
However, on the flip side, they’ve got a proven charismatic entrepreneur / founder in Josh James, an argument about their enterprise customer success, growth, and penetration (which I’ve not had time to crunch the numbers on), and an overall story that has worked very well with investors thus far.
As a side note, it is worth knowing that Domo has attracted a good number of Silicon Valley investor luminaries including Marc Andreessen, a guy with almost god-like status among investors and observers, and Aneel Bhusri, CEO Workday in his capacity as an early stage investing partner with Greylock. Those names always add gloss to the story and, in part explains why, when I wrote my critique in 2016, I noticed that otherwise inquiring minds failed to ask the right questions.
Have these heavy hitters been suckered? That may be too strong a word because the fat lady has yet to sing her siren song. But then I know that in Bhusri's case, he's been laying VC bets far and wide in the general EPM and BI space for some years. I'll leave the reader to figure out why but note Workday recently acquired Adaptive Insights and my notes thereon.
For this analysis, I am going one step further than Kellogg and analyzing the S1 in the context of my 2016 assessment and Jon Reed's recent view from attending Domopalooza 2017 and 2018.
While some media got their panties in a twist about the catering and private jet thing, these were very small items in the context of the whole. Of greater concern is the mystery around how Domo got into such a state that its IPO looks perilously like a bailout for a cash-strapped business. The current S1 pricing will leave many investors underwater unless the stock performs like a champ. One assessment suggested this is an advertising stunt to crank the price. That may be true but if so then it is incredibly dangerous. But to the numbers and why this story is titled the way it is.
In 2016 I provided examples of how I believe Domo misleads that go well beyond the usual BS we see in tech marketing. At the time, Forbes reported:
As part of its app push, Domo said it has 1,000 partnered business apps in its new app store, while making its original core business free for most users. Domo’s even setting up its own investment fund to put $50 million into supporting its new ecosystem.
There is no wording in the IPO to support that statement.
From the same Forbes story:
Some of James’ pronouncements from a year ago haven’t quite panned out. The $200 million run rate he predicted in 2015? Domo has $100 million in bookings under contract and is growing at a rate of 100%, says James.
Nope - not that either. If anything, the current S1 supports my thesis that the company is far from the stellar growth business it claims for one simple reason - what it does is nice but it ain't that spectacular and, per Jon Reed's findings, land and expand is land in the CMOs office and pretty much stay stuck there from what I can see.
In my 2016 analysis Domo made this claim:
The company talks about Tableau customers ‘coming over in droves’ which I don’t believe for one minute.
I didn't believe it then and I don't believe it now. The S1 only makes two references to Tableau and those are generally bucketed along with Qlik Technologies, Looker Data Services Sisense, and Tibco. In 2017, Jon Reed's report backed my thesis with virtually no talk of Tableau. Why would you?
The party nature of Domopalooza is well known. From 2016:
...one person described Domopaloozza as akin to a non-stop party night on Ibiza
The S1 makes this statement:
These costs were higher than usual during the three months ended April 30, 2016, 2017 and 2018 due to increased costs associated with our annual Domopalooza user conference.
That's not true. Above the statement, Domo shows declining sales and marketing spend in the quarters as follows: $190, $146, $124. In fact, the overall marketing spend is somewhat lumpy.
Why is Domo spending so much on marketing - a topic that Kellogg labored upon? I think I know why. Try a test account with Domo and here's what you find.
Underneath the covers
There is a great onramp walkthrough tutorial that shows you how to create nice visualizations - 'cards' in Domo's parlance that are collected into a dashboard. It works well but to be frank, I didn't see much that was significantly better or advanced than I might otherwise create in a Cyfe dashboard. Is that harsh? Perhaps.
There's no doubt that Domo has masses of connectors that work, I tried a handful with our data and yes, I did some cool stuff. But it's not remarkable in the way Domo suggests. The fact they've solved a lot of what amount to ETL problems is very good news but the prominence of Excel and CSV connectors sent a shiver down my spine.
Mobile? Yes - very nice but as we already know, presenting data is one thing, making it actinoable is whole different thing.
So a cursory look tells me they have a decent but not mindblowing proposition. And, to be 100% clear, Domo's positioning as a 'business operating system' is risible. Why? Because they don't own business processes. What about customers then?
Customers speak loud but...
Jon Reed's reporting in both 2017 and 2018 is helpful at different levels. For example, the Target story in 2017 and refreshed in 2018 demonstrates stickiness but also the range and complexity around what some customers are trying to achieve. This must have a significant impact on Domo's R&D.
In late 2017, Reed talked about the impact of a full-on customer feedback session he attended:
In Domo’s case, without getting into the product nitty gritty, popular ideas like “certified cards” get back to the tension Domo is facing between the business user empowerment they excel at, and the data governance/security/data trust issues that matter greatly to enterprise customers – and CIOs.
My sense is that Domo is too immature to have figured out how to balance the business and IT imperatives in the sales and post-sales cycles. So while it's running like crazy in R&D, it's likely to be unfocused in sales and marketing.
There is little doubt it pins great store on Domopalooza - whatever that spend maybe - because their reported number of attendees far outstrips the customer base (3,000 v 1,500). You can parse that as representing 'great interest.' But for whatever reason, that's not translating into the kind of competitive growth the company needs and which would support its marketing spend.
This year, Reed focused on the media company stories coming from WashPo, NYT, ESPN, Univision and so on. What Reed might not have known is that Jeff Bezos, owner of WashPo is also an early Domo investor. The stories Reed recounted were compelling but a couple of things stand out for me.
First, it appears there's a lot of custom work going on. My search through the Domo app store appears to confirm that. That's a resource drain, even when it brings revenue and is a drag in margins even as the S1 shows, Domo does comparatively well when it sells services.
Second, and Reed sort of alluded to this; media is still trying to figure out what it needs to be in a post-Google/Facebook world. It should therefore be non surprise that new models such as the subscription one discussed on stage figure highly among national media customers. But is Domo the business that will get them there? That's NOT what I heard in Reed's reporting yet that is what Domo needs to be in order to capture hearts and minds.
I said it in 2016 and I say it again. Domo may have its hands on a good idea, but it is in desperate need of adult supervision.
It is playing a very dangerous game in its bait and switch with investors almost to the point where I wonder whether CEO Josh James is treating the IPO like a game of weekend poker.
There could be another explanation. James achieved a very nice exit with Omniture and in an orderly fashion with a solution that grew well over time. It made James very wealthy. Did that go to his head at a time when VC funding was entrepreneur friendly and where supervision was minimal based on past track record?
No-one is immune from ego tripping, but if that's the case then a good product or not, it is awfully late to be splashing horrible numbers with the threat of taking your foot off the gas if the IPO flops. That woud be a shame because while I still maintain that Domo is a mile wide and an inch deep, it does have happy customers at some scale. That counts.