Economic slowdown due to COVID-19 leads to Domo layoffs

Amid the economic uncertainty created by the COVID-19 crisis, BI vendor Domo laid off about 10% of its staff.

The Domo layoffs, which took place on April 9 and represent about 90 people across all departments, come less than a month after Domopalooza 2020, the vendor's annual user conference, which this year was held virtually rather than in person. At the event, Domo, founded in 2010 and based in American Fork, Utah, revealed new Augmented intelligence and no-code tools as part of its latest platform update.

The Domo layoffs also come less than two weeks after AI and machine learning vendor DataRobot laid off some of its staff.

"Before the environment changed, we were about nine months away from being profitable," said Josh James, founder and CEO of Domo. "While the business is currently pacing well, there is so much uncertainty ahead and we needed to ensure that we keep ourselves in a position to protect our business with the cash on hand and continue to serve customers for the long term."

He added that the Domo layoffs were part of a $30 million cost reduction plan that included a decrease in executive compensation, reduction in marketing expenses and the elimination of all nonessential expenses. In addition, James said he's been contacting other CEOs in Utah to help the laid off employees find new work.

Despite its technological prowess, Domo, which emerged from stealth in 2015, has yet to turn a profit.

While the business is currently pacing well, there is so much uncertainty ahead and we needed to ensure that we keep ourselves in a position to protect our business with the cash on hand and continue to serve customers for the long term.

The vendor reported revenues of $39.7 million for the quarter ended Jan. 31, 2020, and $146.8 million for the fiscal year ended Jan. 31, 2020. That's an increase from $31.9 million for the three months ended Jan. 31, 2019, and $117.2 million for the year ended Jan. 31, 2019.

Nevertheless, Domo reported a net loss of $19.6 million for the three months ended Jan. 31, 2020, and $125.7 million for the fiscal year ended Jan. 31, 2020.

Meanwhile, the vendor took on a large amount of debt in its early years that was revealed when it went public in 2018 -- at the time it reported $96.1 million of long-term debt in its S-1 filing with the Securities and Exchange Commission -- and contributed to a rocky IPO.

Since first going public on June 29, 2018, Domo's stock has dropped from $27.30 per share to about $14 per share during trading on Monday.

Given the economic uncertainty created by the COVID-19 pandemic combined with Domo's financial situation, the Domo layoffs did not come as a surprise to analysts. Nor would layoffs by other small and midsize BI vendors competing for market share against tech giants like Microsoft and Oracle, analysts said.

"I'm sad for Domo's people, but I'm not surprised," said Jen Underwood, founder and principal consultant at Impact Analytix. "I expect more analytics vendor layoffs and market consolidation."

Similarly, Donald Farmer, founder and principal at TreeHive Strategy, said the Domo layoffs were understandable.

"I was not surprised by the Domo announcement, although the scale of layoffs is more than I expected," he said. "The truth is, there are very few costs Domo can cut except personnel."

If Domo and its BI brethren are to survive the economic downturn, technological innovation will play a key role, the analysts said.

And that's an area where Domo is strong, according to Farmer.

"Domo continues to be one of the more innovative BI companies, with a depth of technology that they have been continuously surfacing to users with both good design and solid engineering," he said. "I see that in contrast to some other BI vendors who have been jumping on the bandwagon of augmented analytics with front-end features that have little depth to them."

Underwood, however, cautioned that despite the strength of Domo's platform, it isn’'t revolutionary technology.

"Domo entered an already crowded, intensely competitive cloud analytics market with a nice offering [but one] that was not disruptive," Underwood said. "Smaller vendors like Domo need to get creative, pivot, and reinvent to ride the big tech wave -- not compete with it. If analytics vendors deliver exceptional customer experiences that the big tech vendors won't, they could survive."

While the Domo layoffs will reduce the vendor's expenditures, how the staff reduction will affect customers remains to be seen.

According to James, the cost-cutting measures position Domo to continue moving forward.

"I want to reassure customers that we considered all decisions with an eye on minimizing the impact on them," he said. "Roughly 90% of our workforce was not affected and our focus is to ensure we are here for the long term to help customers navigate this environment. In fact, we still are hiring for a few key roles that enable us to keep delivering on that commitment."

Farmer similarly said that despite the layoffs, Domo has enough engineering prowess to keep providing its customers a competitive platform. He cautioned, though, that the reduction in staff could result in a slower development pipeline.

Underwood, however, said that despite the assurances from James, the Domo layoffs could create uncertainty about the vendor's future. Domo's uneven financial past combined with the need to now reduce staff lead to valid questions about where it, and other smaller tech vendors, may be headed, she argued.

"Unfortunately, Domo's layoffs will raise questions about the company's longer-term direction and viability," Underwood said. "[But] it's not just Domo. Everyone is thinking about what comes after COVID-19, the first global lockdown for our generation."