Domo (NASDAQ:DOMO) has been a divisive stock since its IPO in mid-2018. The cloud analytics software provider went public at $21, more than doubled to the low $40s the following March, and subsequently tumbled back to the mid-teens.

The bulls were initially impressed by the disruptive potential of Domo's platform, which provides visualized data on a mobile app, and its robust growth rates. However, the bears noted Domo's growth was slowing, it was deeply unprofitable, and it faced fresh competition from tech giants like Salesforce (NYSE:CRM) and Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google.

An IT professional checks a tablet.

Image source: Getty Images.

Domo's recent fourth-quarter numbers didn't allay all those concerns, but they still cleared Wall Street's expectations. Its revenue rose 17% annually to $46.2 million, beating estimates by $0.5 million. Its non-GAAP net loss narrowed slightly from $25 million to $23.7 million, or $0.85 per share, which beat expectations by $0.11.

Did those better-than-expected numbers prove the bears wrong? Or does Domo still face a long uphill battle before it trades above its IPO price again?

Domo's growth is still slowing

Domo's growth in revenue and billings in the fourth quarter still marked its slowest growth rates since its IPO:

YOY growth

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Billings

26%

22%

9%

15%

13%

Revenue

31%

28%

22%

22%

17%

YOY = Year-over-year. Source: Domo quarterly reports.

Domo expects its revenue to rise 13%-15% annually in the first quarter, and 11%-14% for the full year. It expects its net losses to narrow slightly for both periods, but it doesn't expect to generate a profit anytime soon.

Domo's slowdown suggests that it's running out of room to grow, and it could struggle to compete against bigger competitors like Salesforce's Tableau and Google's Looker. Salesforce and Google can both afford to bundle their similar data visualization services with other cloud services in more cost-efficient packages.

But its sticky ecosystem is still gaining big customers

Domo frequently highlights its subscription services, which lock users into its ecosystem, as a benchmark of its long-term growth. Its subscription revenue rose 24% annually and accounted for 86% of its top line during the quarter, and its gross margin improved two percentage points annually to 76%.

Metric

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Subscriptions as a percentage of sales

81%

84%

84%

85%

86%

Subscription gross margin

74%

77%

75%

76%

76%

Source: Domo quarterly reports.

Domo reported a gross retention rate of 91% during the quarter, up from 90% in the third quarter and 82% in the prior-year quarter. The percentage of customers signing multi-year contracts also rose from 38% at the time of its IPO to 55% today.

Those figures all indicate that Domo's ecosystem is incredibly sticky, and that it's carved out a defensible niche in the crowded cloud services market. Domo also recently signed Amazon (NASDAQ:AMZN) as a major customer -- which wasn't surprising, since Jeff Bezos owns a personal stake in the company.

Domo reduced its GAAP operating expenses 4% annually during the fourth quarter, which narrowed its net loss and indicated that it wasn't breaking the bank to acquire new customers. Domo also isn't too heavily exposed to the coronavirus crisis, since its core business relies on remote cloud-based services.

A low valuation and a potential takeover target

Domo trades at less than three times next year's revenue forecast, making it significantly cheaper than other cloud companies. Salesforce, for example, trades at roughly six times next year's sales. Domo's low enterprise value of about $500 million also makes it a lucrative buyout target for tech giants like Amazon.

Domo's stock is cheap for two main reasons: Investors generally prefer higher growth from small-cap stocks in the cloud services market, and it's unclear if Domo can withstand the competitive pressure from Salesforce, Google, and other tech titans. Domo still hasn't proved the bears wrong yet, but its sticky ecosystem, improving margins, and buyout potential all suggest that its stock could still have room to run.