Doximity's stock rises 32% before losing gains amid poor quarterly results

Doximity, Inc. saw its stock price more than double on August 7 following a fiscal first-quarter earnings report, but most of those gains evaporated by the end of the trading day. The medical networking platform's CEO, Jeffrey Tangney, announced that the company’s new AI Search product generates significantly more revenue than its operational costs, sparking initial investor enthusiasm. The stock rose from approximately $38.86 to an intraday high around $40 before closing at $27.40, a 32.6% increase that still left it almost 40% down year-to-date.

The stock's surge was primarily driven by a single optimistic claim about AI Search, overshadowing less favorable quarterly performance. While Doximity reported a 7% year-over-year revenue increase to $156.6 million and earnings per share (EPS) slightly above expectations, profitability took a hit. Net income fell by 54% to $24.3 million, and free cash flow dropped by 34%. Management did raise its revenue guidance for the full fiscal year, but only slightly, indicating a slowdown in growth compared to the previous year.

Analysts have noted a disconnect between the initial market reaction and the underlying financials. Jessica Tassan from Piper Sandler highlighted that the revised outlook seems more a reflection of the earnings beat rather than a true representation of the AI Search product's potential, especially since Doximity reported no AI Search revenue during the quarter. However, there are positive indicators, including a strong enterprise business with 112% net revenue retention and a high adjusted EBITDA margin.

Despite the mixed results, some analysts still consider Doximity's stock undervalued. It remains around 32% lower than earlier this year, and if the AI Search product continues to perform as promised, it could be a significant long-term growth driver. Institutional investors have been cautious, with hedge funds maintaining large short positions ahead of the earnings report, reflecting ongoing uncertainty about the company's future performance.