Behold the Unicorn

“You need something alive like a mermaid or a unicorn.” – PT Barnum’s daughter in The Greatest Showman

Domo has been a high profile “unicorn” here in Utah for a few years, and it recently filed with the SEC to go public.  I learned one thing from reading the S1:

I’m just not smart enough to understand what’s going on.  That’s why I don’t usually buy equity in private companies.

Consider:

  • Last year the company lost $175 Million (this is an improvement from a loss of $182 Million the year before).
  • However, the company only generated $108.5 Million of revenue last year.
  • Forget about expenses such as R&D or G&A, let’s look at Sales & Marketing expenses.  Last year the company spent $131.8 Million in Sales & Marketing expenses to generate that $108.5 Million of revenue.
  • In the first quarter of this year, the company spent $39.7 Million in Sales & Marketing expenses to generate almost $32 Million of revenue.

The good news is that the ratio of Sales & Marketing expenses to revenue is getting better (declining and approaching one).  The bad news is that sales growth is slowing.

After telling us about the seasonality of the business, the company provides enough data to calculate the last 5 quarters of year-over-year growth in customer billings.  Here are the percentages: 39%, 39%, 43%, 40%, and 22%.

Perhaps they waited a quarter too long to go public.

At the top end of the proposed IPO range of $22 per share, Domo will be valued at approximately $550 Million.

I thought unicorns were valued over $1 Billion.

Oh, and the company already has $100 Million of debt on the books.

I’m just not smart enough to understand why this is a good investment, and I’ll pass.

Perhaps unicorns are best kept in the fantasy world.

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