Privacy Rules Will Squeeze Margins While Tools Will Support Recovery

Key Takeaways

• Rising compliance costs, platform fatigue, and stronger competition may compress margins and threaten Doximity's core revenue growth.
  
• Shifts in client digital marketing budgets and the move to integrated health IT platforms could increase customer churn and limit user expansion.
  
• Strong platform engagement, expanding multi-module adoption, and ample reinvestment capacity position Doximity for durable revenue growth, increased margins, and long-term expansion opportunities.

Catalysts

Operates as a digital platform for medical professionals in the United States.

• Tightening regulation around digital data privacy is poised to increase compliance costs for Doximity, potentially limiting the effectiveness of its data-driven advertising products and workflow tools, which could compress future operating margins and restrict core ad revenue growth.
  
• As macroeconomic uncertainty persists, healthcare and pharma clients may pull back or reallocate digital marketing budgets, threatening Doximity's primary revenue streams and leading to slower top-line growth as client budgets come under pressure.
  
• Despite recent highs in user engagement, Doximity may soon face platform saturation or engagement fatigue among U.S. physicians, sharply limiting the company's ability to drive further network effects or grow its addressable market, resulting in stagnating user growth and, ultimately, revenue deceleration.
  
• Heightening competition from larger health IT and technology conglomerates, as well as ongoing consolidation in healthcare technology, threatens to erode Doximity's pricing power and customer stickiness, driving up research and development and sales costs while structurally pressuring net margins.
  
• The rapid shift towards integrated electronic health record platforms and the risk of being viewed as a non-essential standalone solution means Doximity's value proposition could diminish, leading to lower revenue per user and increased customer churn as enterprise clients prefer fully integrated systems.

Doximity Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Doximity compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Doximity's revenue will grow by 9.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 39.1% today to 35.2% in 3 years time.
• The bearish analysts expect earnings to reach $266.0 million (and earnings per share of $1.29) by about July 2028, up from $223.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 45.2x on those 2028 earnings, down from 52.5x today. This future PE is lower than the current PE for the US Healthcare Services industry at 58.5x.
• Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

Doximity Future Earnings Per Share Growth

Risks

• Accelerating adoption of integrated multi-module offerings and workflow tools, combined with the AI-powered client portal, is increasing revenue predictability, driving larger average deal sizes, and creating recurring upsell opportunities, which could sustain high revenue growth rates and bolster long-term earnings.
  
• Robust platform engagement, demonstrated by record highs across unique active users, newsfeed readership, and workflow tool adoption, provides a defensible network effect and strengthens Doximity's data moat, supporting both increased ad revenue and a future runway for SaaS and AI product monetization, which may translate to continued margin expansion.
  
• Proven ability to consistently achieve high net revenue retention rates, exemplified by 119 percent overall and 123 percent for the largest clients, reflects enduring value to key customers and suggests a foundation for sustained top-line and net margin growth.
  
• The under-penetration of newer workflow modules and point-of-care offerings in the current client base, alongside success in expanding to SMB clients and a large market of unserved brands, points to significant untapped revenue streams and long-term expansion potential.
  
• Substantial free cash flow generation and a cash reserve nearing one billion dollars equip Doximity with ample capacity for reinvestment in AI, product innovation, or select acquisitions, reinforcing both profit stability and potential for accelerated earnings growth over the coming years.

Valuation

• The assumed bearish price target for Doximity is $50.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Doximity's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $50.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $754.9 million, earnings will come to $266.0 million, and it would be trading on a PE ratio of 45.2x, assuming you use a discount rate of 7.4%.
• Given the current share price of $62.34, the bearish analyst price target of $50.0 is 24.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.