Snowflake (SNOW +1.20%) and Domo (DOMO +1.30%) both make it easier for large companies to organize, view, and analyze their data. Snowflake's cloud-based data warehousing platform enables companies to store all their data from different computing platforms in a centralized location easily accessed by third-party apps.
One of those apps is Domo, which bundles data visualization services, data management and analytics services, employee collaboration tools, and an integrated app store on a cloud-based platform. Snowflake and Domo operate in different markets, but both help their clients break down fragmented silos and make better data-driven decisions.
But is one a better investment than the other today? Let's take a look.
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The market loved Snowflake and Domo during the buying frenzy in growth stocks last year, but both stumbled this year as rising interest rates drove investors toward more conservative investments. Snowflake's stock closed at an all-time high of $401.89 last November, but it's now worth about $145. Domo's stock trades at about $18, compared to its record high of $97.70 last August.
That hasn't stopped either company from pressing ahead with their plans although each faces challenges, including some robust competition.
The differences between Snowflake and Domo
Snowflake isn't the only cloud-based data warehousing platform in town. Amazon integrates a similar platform called Redshift into its cloud infrastructure platform, Amazon Web Services (AWS). Microsoft's Azure cloud infrastructure platform serves the same market with its SQL Server and Synapse Analytics services. Snowflake runs on top of AWS, Azure, and other cloud services, ironically paying infrastructure fees to its largest competitors.
However, that flexibility also makes Snowflake's platform easier to scale and doesn't tether its clients to a single cloud infrastructure platform. It also splits storage and compute platforms into stand-alone, usage-based services, so companies only pay for the computing power they need instead of locking themselves into sticky recurring subscriptions. Snowflake can also be easily integrated into a wide range of third-party services.
Domo operates in a more crowded market than Snowflake. Plenty of other companies, including Microsoft, Salesforce, and Splunk, provide similar data visualization dashboards and collaboration tools. All those companies also integrate their services into Snowflake and other cloud-based data warehouses. Unlike Snowflake, Domo generates most of its revenue from recurring subscriptions.
Which company is growing faster?
Snowflake's simple, scalable approach to storing data caught on like wildfire over the past several years. Its product revenue, accounting for most of its top line, soared 120% in fiscal 2021 (which ended Jan. 2021), 106% in fiscal 2022, and is expected to grow 68%-69% this year. Its net revenue retention rate, which gauges its year-over-year revenue growth per existing customer over a trailing-24-month period, also has stayed comfortably above 160% over the past three years.
Its adjusted product gross margin expanded from 69% in fiscal 2021 to 74% in fiscal 2022, and it expects that metric to hit 75% in fiscal 2023. Its adjusted operating margin also turned positive in the first nine months of fiscal 2023 and is expected to turn in a full-year profit on a non-GAAP (generally accepted accounting principles) basis. However, it's still unprofitable by GAAP standards, and those losses are widening.
NYSE: SNOW
Key Data Points
Domo is growing at a much slower rate than Snowflake. Its revenue rose 21% in fiscal 2021 (also ended Jan. 2021), 23% in fiscal 2022, and is expected to grow 19% this year. Those growth rates look comparable to Salesforce's, yet Salesforce is also expected to generate more than 100 times as much revenue as Domo this year.
On the bright side, Domo's net retention rate (which gauges its year-over-year growth in annual recurring revenues) remains above 100%. Its adjusted subscription gross margin rose from 81% in fiscal 2021 to 83% in 2022 and to 85% in the first nine months of fiscal 2023. However, Domo is still unprofitable by both non-GAAP and GAAP measures.
NASDAQ: DOMO
Key Data Points
The valuations and verdict
Snowflake still trades at 15 times next year's sales, making it a bit expensive relative to other higher-growth tech stocks. Domo looks a lot cheaper at less than two times next year's sales, but that's because it only generates sales growth comparable to its larger peers, doesn't have clear competitive advantages, and lacks a clear path toward profitability.
Snowflake, which believes its product revenue will grow at a compound annual rate of at least 36% from fiscal 2022 to 2029, seems to have a much brighter future. Its stock could remain volatile as the bear market drags on, but I believe it's still a more compelling investment than Domo today.
