Domo’s deal with the devil: A desperate IPO reduced the company’s value 77%

Strapped for cash, Domo sold its soul to the IPO overlords, trading a 77% value decrease for some liquidity.

Overhyped data analytics startup Domo posted a historically anticlimactic IPO last week. The offering, filed in a desperate attempt to raise cash, valued the company at  $511m — a mere 23% of its former $2.2B target.

It wasn’t a complete failure (stock prices rose as much as 20% on its first day of trading), but the remarkable decline in value shows that IPOs can go haywire when funding flows like the salmon of Capistrano. 

The devil is in the data…

And for Domo, the numbers don’t add up. The company’s value has declined rapidly due to chronic cash flow problems — last year the company had a net loss of $176.6m (slightly better than $183m losses the previous year).

The company tacked $193m onto the $690m it raised pre-IPO, meaning Domo’s raised $883m — but is only worth $511m. So, to drum up investor interest, the company got desperate.

[Cue IPO pump-up music…]

Sit tight, investors — it could be a bumpy 24 months…

“These are just financing events,” Domo CEO Josh James told CNBC on Friday, assuring investors that Domo’s fortunes would turn around. “What really matters is: What does this look like in 24 months?”

But most investors don’t share James’ optimism. As one analyst bluntly put it, “Investors should stay away from this IPO.”

‘To IPO or not to IPO, that is the question’

Companies have been drinking deep from the IPO fountain in recent months, thanks to a bullish investment market. 

DocuSign and Spotify have IPO’d to increase their private values, while other companies, like Airbnb and Uber, continue to hold out — a gamble made possible by plentiful late-stage funding.

But, Domo fell into an unfortunate third category — opting for a disadvantageous IPO just to keep the lights on. Domo’s IPO (like DocuSign’s recent IPO, which included a 25% haircut) reduced its value by about 77% 

When you mess with the bull (market)…

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