The slowdown in advertising demand has affected businesses of all sizes. As enterprises fear an economic deceleration and cut back budgets, ad spending is one of the first things to go. Even Alphabet is feeling the pressure, as seen in its most recent quarterly results.

However, Doximity's (DOCS 2.07%) platform has barely seen the crunch from this advertising slowdown. The company is often called the "LinkedIn for doctors," since it works to help healthcare professionals grow their careers and operate their practices more efficiently. Importantly, Doximity is a leader, with over 80% of U.S. physicians already using its platform. Considering how valuable its customer base is to pharma companies looking to advertise to healthcare professionals, demand for ad space on its platform has remained remarkably healthy. 

Does this resiliency mean that Doximity is a stock to buy and hold for the long haul? Let's find out. 

Doctor going over X-rays with a patient via telehealth.

Image source: Getty Images.

Brushing the fears off

Doximity sells ad inventory to two primary players: Pharmaceutical manufacturers looking to promote their latest drugs, and health systems looking to recruit the best healthcare professionals on the market. Considering that Doximity is home to the vast majority of practicing physicians, along with 90% of graduating U.S. medical students, it can be a valuable place for these companies to advertise. 

Because of this, Doximity's advertising results remained robust, while other advertising companies have struggled over the past few months. Revenue in the company's second fiscal quarter -- which ended Sept. 30, 2022 -- soared 29% year over year to $102 million. Doximity also anticipates full-year revenue (for the year ending March 31, 2023) of roughly $428 million, implying a 25% year-over-year increase. 

This stability in the company's expansion rates is due to Doximity's unrivaled user cohort that provides unrivaled value to advertisers, but also to the return on ad dollars Doximity supplies. Pharma companies remain incredibly disciplined regarding the return on ad spending, so Doximity must continuously deliver value to these businesses -- and it did just that over the past six months. Return on investment dollars was 15 to one for pharma companies, far exceeding the three-to-one return many pharma companies strive for.

Profits remain high

Because of this, Doximity continued to post incredible profitability. In fiscal Q2, the company delivered a 26% net income margin and a free cash flow margin of 37%. While the company's net income margin is lower than the year-ago period, it is nowhere near as volatile as other advertising stocks. Take Roku (NASDAQ: ROKU), for example. From third-quarter 2021 to Q3 2022, the company's net income margin has fallen from 10% to -16%. 

Doximity is the leading platform in terms of user count, and few rivals have the same user and customer penetration it has, giving the company a notable advantage with its powerful network effects. However, this profitability also gives it a prominent edge. These sustainable cash flows enable Doximity to continue investing in new products and services to keep its user retention high, increasing the value and demand for open ad space. 

This advantage is already playing out, as Doximity recently added a new feature to its product suite. The scan number feature enables doctors to call patients nearly instantly. This innovation might seem minor, but it shows how Doximty can use its cash to build creative features. While one innovation alone might not help with user retention, the continuous development of new products likely will.

Is Doximity a buy?

Doximity is undoubtedly a high-quality company with healthy competitive advantages and hard-to-replicate dominance, but the stock is valued as such. Shares trade at nearly 50 times earnings, which is a high multiple, no matter how you slice it.

That said, Doximity is doing what few other advertising companies can: Keep advertising demand stable during this challenging time. With its high-value user base and the most prominent health systems and pharma companies as customers, this stability will likely continue, even if the macro picture worsens. It might not be time to go all-in on Doximity today, but slowly dollar-cost averaging into a position might pay off over the long haul.