Shares of the Doximity (DOCS 1.38%) -- the No. 1 digital platform for medical professionals -- are down 24% as of 11 a.m. ET on Friday after the company reported third-quarter earnings Thursday afternoon. Sales and earnings per share exceeded Wall Street's expectations, but management's guidance for 4% revenue growth in Q4 sent the stock down sharply. Doximity's sales growth has slowed from 23% in Q3 last year to 10% in Q3 this year, so the upcoming quarter's conservative guidance really spooked the markets. Making matters worse, net income declined from $75 million in Q3 2025 to $62 million this year as marketing expenses rose 27% and the company invested heavily in its AI infrastructure.
NYSE: DOCS
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That said, I think Doximity's long-term investment thesis remains intact. Most of this quarter's volatility comes from shorter-term issues. For example, pharmaceutical companies are among Doximity's largest customers because they advertise with the company. These pharma companies continue to battle industry-specific headwinds, with 16 of the 20 largest pharma companies recently signing most-favored-nation agreements, resulting in delayed bookings with Doximity as they waited for clarity. This delay looks bad right now, but board member Tim Cabral highlighted how this was merely a timing shift, explaining, "This is evident in our January pharma bookings growth rate, which is the best we've seen since going public." The sales slowdown in Q3 and Q4 shouldn't be a sign of a long-term problem.
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Also, while AI spending is currently a headwind to Doximity's financials, its adoption rates look promising. Over 100 of the top U.S. health systems started using Doximity's AI products, including over 300,000 prescribers in Q3. However, Doximity did not include any AI revenue in its guidance. As the company fully launches and monetizes its commercial AI suite later this year, growth rates and margins could improve. Currently trading at just 17 times free cash flow -- but used by 85% of U.S. physicians and two-thirds of physicians' assistants and nurse practitioners -- Doximity remains a promising growth stock, and I'll be looking to add to it soon.
