Domo Inc. (NASDAQ:DOMO), a provider of cloud analytics software, went public in June and got off to a rocky start. It debuted at $21 per share, and shares surged above $27 on the first day of trading, but tumbled to about $14 by late November.

However, Domo's fiscal third-quarter 2019 earnings report on Dec. 7 caused the stock to skyrocket more than 30% -- although it still remains below its IPO price. Should investors chase this post-earnings pop, or remain cautious?

A network of cloud computing connections.

Image source: Getty Images.

Reviewing Domo's third-quarter numbers

Domo's revenue rose 30% against the fiscal third quarter of 2018 to $36.8 million, beating estimates by $1.8 million but marking a deceleration from its 32% year-over-year growth in the second quarter. Domo's billings grew 29% to $38.8 million, compared with 35% growth in the previous sequential quarter.

However, Domo's subscription revenue, which locks in customers, accounted for 83% of its revenue, compared with 82% in the second quarter. The company's subscription gross margin also expanded both sequentially and annually to 73%.

Domo's operating margin remained negative by both GAAP and non-GAAP metrics, but the losses narrowed. The company's GAAP operating loss decreased from $43.7 million in the prior-year quarter to $30 million, and its non-GAAP operating loss narrowed from $41.3 million to $25.3 million.

Domo's stock-based compensation expenses -- which are excluded from its non-GAAP numbers -- rose 48% against the prior-year quarter and accounted for 13% of its revenues, compared with 8% a year earlier. On the bottom line, Domo posted a non-GAAP net loss of $27.9 million, or $1.06 per share, which beat expectations by $0.32. On a GAAP basis, it reported a loss of $1.24 per share.

For the full year, Domo expects its revenue to rise 30% compared with 46% growth in fiscal 2018. It expects to report a non-GAAP net loss of between $8.79 and $8.83 compared with a loss of $7.38 per share in 2018. However, those figures aren't exactly comparable since Domo had 23.9 million shares outstanding at the end of 2018 (prior to its IPO), and expects to finish the year with just 16.4 million outstanding shares.

Understanding the tailwinds and headwinds which will impact Domo

Domo provides a cloud-based OS that lets CEOs manage their entire companies from their smartphones with real-time data and management tools. Employees can also access the platform's analytics tools to make business decisions.

The company now serves over 1,500 organizations -- including 430 enterprise customers with $1 billion or more in annual revenue -- compared with 351 in the prior-year quarter. Those big customers account for nearly half of Domo's revenue.

A secure enterprise smartphone app.

Image source: Getty Images.

Domo is expanding its ecosystem with its Mr. Roboto AI platform for handling queries, its Buzz collaboration and productivity suite for employees, its Adrenaline data warehouse, and various data visualization tools. Domo also lets developers integrate its features into mobile apps via its DomoBots "connectors," Fusion data transformation engine, and Domo Appstore.

The main headwind for Domo is the competition. A growing number of larger competitors -- including Microsoft (NASDAQ:MSFT), Tableau, and (NYSE:CRM) -- offer similar cloud-based collaboration and data visualization services.

Microsoft and Salesforce represent the more significant threats, since Microsoft can bundle those features into its cloud services and mobile apps, and Salesforce can integrate similar services into its market-leading portfolio of customer relationship management (CRM) services.

On the bright side, Domo's subscription-based gross margin is gradually expanding, and its dollar-based net revenue retention rates topped 100% during the quarter. In other words, it's easily retaining customers without sacrificing its margins -- which indicates that it's maintaining a "best in breed" reputation in its niche market.

I'm cautiously optimistic about Domo

Back in July, I warned investors that it was too early to chase Domo. However, Domo's stable revenue growth, expanding margins, and narrowing losses indicate that it might be a worthy investment at about four times this year's sales. Microsoft and Salesforce trade at six times and eight times this year's revenue estimates, respectively.

However, I'd still only nibble on Domo at these levels, since the stock is volatile and could slide much lower if investors flee to more conservative stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.