Shares of the leading digital healthcare platform for medical professionals in the U.S., Doximity (DOCS 25.70%), were down 24% as of 11 a.m. ET on Thursday after the company reported underwhelming fourth-quarter earnings. Despite offering conservative Q4 guidance at its last earnings call, Doximity barely snuck past sales expectations from Wall Street and came up shy on earnings.
For the quarter, sales rose 5%, and free cash flow (FCF) increased 11%, while the full year showed increases of 13% and 19% in revenue and FCF, respectively. Perhaps the biggest disappointment from today's report was management's full-year revenue growth guidance of only 3% to 5% in 2027 -- paired with a declining adjusted EBITDA margin.
NYSE: DOCS
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As rough as Doximity's results are on the surface -- it is a core holding for me -- I don't think the company is "doomed" by any means, operationally speaking. Rather, management openly admitted that it is increasing spending on AI-powered products (which will weigh on profitability) at a time when the healthcare professional advertising market is already soft amid broader macroeconomic challenges.
Image source: Getty Images.
Vice President of Investor Relations Perry Scott Gold touched on this weakness, explaining,
I think the overarching theme is there is more uncertainty. Policy, and now macro. I think as a result, a lot of these companies, the C-suite want to retain optionality. So we are seeing some of these incremental buys are just shorter duration.
With 85% of U.S. physicians on its network and 20 of the top 20 hospitals and pharmaceutical companies as clients, Doximity's leadership isn't in danger -- but the industry slowdown will still impact them.
While AI investments will likely continue to weigh on margins, Doximity is showing some promising progress with the all-important technology, reporting that:
- nearly half of its prescribers used AI tools
- seven of the top 20 hospitals have purchased the company's clinical AI suite
- AI search and transscribe users have tripled in nine months
Doximity's valuation at 12 times forward earnings is downright cheap, but it will be essential for the company to clear the low bar it set over the coming quarters.
