Doma Holdings (DOMA -0.33%) is one of the many firms that went public this year through a merger with a special purpose acquisition company (SPAC). Management has high aspirations for the company, but external factors related to fears of inflation (which can cause interest rates to rise) and the omicron coronavirus variant have helped depress the stock price since the merger.
Despite this, Doma's underlying business is sound. The company's business model involves the use of technology to streamline real estate transactions. The real estate sector lags behind many other industries in technology adoption, creating opportunities for tech companies such as Doma to disrupt and modernize antiquated industry processes.
Image source: Getty Images.
Because the U.S. is a multi-trillion-dollar housing market, successful disruption will lead to exponentially bigger earnings. The key is in understanding if Doma's offerings are gaining traction in the industry. A look at the company's 2021 financial results reveals the answer.
Adoption of Doma's services
Today, Doma focuses on a specific area of the real estate sales process. It provides title insurance, escrow, and other services related to the closing portion of a real estate transaction. This narrow focus is a smart approach for a nascent technology company, akin to how Amazon started by first succeeding in books before expanding into other product categories and services.
Doma tracks the adoption of its offerings through a metric called opened orders, which represents the number of requests for Doma's services. In this area, Doma is reporting a sequential trend of rising opened orders.
| Quarter | Opened Orders | YOY Growth |
|---|---|---|
| Q3 2021 | 52,867 | 40.7% |
| Q2 2021 | 41,491 | 36.3% |
| Q1 2021 | 41,000 | 24.2% |
Data source: Doma. YOY = year-over-year.
It's not just opened orders that are increasing. Doma also tracks closed orders, which represents the number of opened orders that were completed. This number is also going up.
In the third quarter, Doma saw closed orders jump 39% year over year to 35,300. And through the first three quarters this year, Doma's closed orders reached 99,386, a 53% increase from 2020.
Doma's financial success
The increasing adoption of Doma's services has translated into rising revenue. Doma's third-quarter results marked the third consecutive quarter of revenue growth.
| Quarter | Total Revenue | YOY Growth |
|---|---|---|
| Q3 2021 | $162.6 million | 34% |
| Q2 2021 | $130.0 million | 29% |
| Q1 2021 | $127.8 million | 80% |
Data source: Doma. YOY = year-over-year.
The company's stellar Q3 results brought 2021 revenue to $420.4 million through three quarters, already exceeding 2020's full-year revenue of $409.8 million. At the end of Q3, Doma had generated enough business that it expects 2021 full-year revenue to come in at or above the high end of its forecasted revenue range of $475 million to $525 million.
This year's strong results have led to an equally strong balance sheet. Doma exited Q3 with total assets of $689.1 million, with $411.7 million of that in cash and equivalents. The company's total liabilities stand at $307.2 million.
Doma's one downside is that it's experiencing a widening net loss this year. In Q3, the net loss was $34.3 million, compared with $3.6 million last year. Note, though, that it's common for tech companies to experience a net loss for years while management focuses on growth. This is the case with Doma.
The company is working to expand its offerings beyond its current services, extending into appraisals and home warranties. This expansion requires investment in its technology to support these new areas, so its increased net loss makes sense.
Will Doma stock pay off over the long run?
Despite the company's strong 2021 financial results, Doma's stock performance has been far from stellar since the merger near the end of July. Shares hit a 52-week low as recently as Dec. 3.
Along with external factors such as inflation, short-sellers have contributed to depressing the stock price. In August, when the stock was still new to the market, the short interest stood at 1.7%. The percentage of the float shorted has risen since then, hitting 3% as of Nov. 15.
But the depressed stock price creates a buying opportunity for the patient investor. Doma is still a young company, founded in 2016. This means Doma is in the early stages of gaining adoption for its services, putting it in a position to continue growing. That growth will be reflected in the stock price over time.
As this year's numbers reveal, Doma is successfully capturing customers. It counts JPMorgan Chase and Wells Fargo among its clients, and management estimates its total addressable market (TAM) at $23 billion for its current offerings. Once it expands into appraisals and home warranties, Doma management believes these services will add another $11 billion to its TAM.
Given its track record of success and its market opportunities in the real estate sector, Doma is well-positioned to deliver on customer and revenue growth for several years. It's factors like these that make Doma a worthwhile stock to consider adding and holding in your portfolio over the long run.
