Shares Fall on Lowered Guidance and Competition Concerns

Shares of cloud-data software company Domo (ticker: DOMO) faced a significant setback on Friday as a result of lowered guidance and mounting competition. This led to an analyst downgrading the stock and caused a sharp decline in premarket trading.

Revised Guidance Disappoints Investors

While Domo reported a narrower-than-expected second-quarter adjusted loss, their third-quarter guidance fell short of analysts' forecasts. In addition, the company adjusted its revenue guidance for fiscal 2024, lowering it from a previous range of $323 million to $330 million to a new range of $316 million to $320 million. Furthermore, Domo now expects an adjusted loss between 39 cents and 47 cents per share, widening from the previous range.

Competitive Challenges and Vendor Consolidation

Citing the emergence of new competitive challenges, TD Cowen analysts downgraded Domo's stock rating from Outperform to Market Perform. They also reduced the price target from $20 to $14. The analysts attributed these changes to vendor consolidation and the company's tougher macro environment with increased budget scrutiny.

Domo's management revealed that some enterprise and potential customers are seeking to consolidate their separate business intelligence tools as a cost-cutting measure. The competition, believed to primarily refer to Microsoft (MSFT), is also causing concern as Domo expects a loss of clients from a group of large customers in the second half of the year.

Furthermore, management acknowledged that although they have been successfully building new sales teams and experiencing low attrition rates, productivity levels are not reaching historical levels. Analysts suspect that this decline in productivity might be linked to competition from Microsoft.

Overall, Domo faces multiple challenges ahead as it navigates heightened competition and adjusts its revenue projections. Investors will be closely monitoring the company's performance in the coming months.