What happened
Shares of Doximity (DOCS 11.08%) slumped Friday, tumbling as much 13.5%. As of 2:06 p.m. ET, the stock was still down 10%.
The cloud-based networking platform for doctors and other healthcare professionals delivered financial results that beat expectations. At the same time management provided guidance that left investors wanting more. Looking a little deeper, however, reveals a good reason for the change in guidance.
NYSE: DOCS
Key Data Points
So what
For its fiscal 2023 third quarter (ended Dec. 31), Doximity generated revenue of $115.3 million, up 18% year over year, resulting in adjusted earnings per share (EPS) of $0.22, down 24%.
The results were well ahead of expectations, as analysts' consensus estimates were calling for revenue of $111.3 million and EPS of $0.18.
CEO Jeffrey Tangney said that physician engagement "hit new record highs," helping fuel Doximity's net revenue retention rate of 127% among its top 20 clients.
Unfortunately, Doximity encountered unexpected delays in the approval of some of its vertical video products, which are subject to medical legal reviews. This will result in a 2% hit to its full-year revenue guidance.
Now what
The news isn't as bad as it appears at first glance. Tangney noted that the revenue was "delayed, not lost." Furthermore, clients signed on for more products than originally anticipated. While this amplifies the revenue delays over the short term, it will result in more robust growth down the road.
As a result, management reined in its full-year revenue guidance. For fiscal 2023, Doximity now expects revenue in a range of $109.6 million to $110.6 million, representing growth of about 22% at the midpoint of its guidance, down from its previous expectations for growth of 23% to 26%.
It's important to push this issue in context. Doximity is the leading network for healthcare professionals in the U.S. with more than 80% of physicians, as well as the top 20 hospitals and top 20 pharmaceutical manufacturers on its platform. This results in a nearly unassailable moat that is simply unmatched.
The valuation is still on the lofty side at 50 times earnings and 12 times next year's sales, but it's much more reasonable than it has been. Further declines, however, might make Doximity stock just what the doctor ordered.
