For a few hours on August 7, Doximity, Inc. (NYSE:DOCS) appeared to be the story of the earnings season. The medical-networking platform's stock more than doubled overnight following its fiscal first-quarter report, with CEO Jeffrey Tangney mentioning a metric that piqued traders' interest: the company's new AI Search product, he claimed on the results call, generates more than ten times what it costs to run. That's about as good as unit economics get.
However, by the time the rush subsided, the stock had given back the majority of its gains. Shares began around $38.86 on the move, surged to an intraday high around $40, and closed the session up 32.6% at $27.40, 31.5% below the top. Even with the pullback, the stock is still down almost 40% year-to-date.
Doximity's actual quarterly results were solid but far from exceptional. Revenue increased 7% year-over-year to $156.6 million, edging over forecasts, with EPS of $0.29, a penny higher than expected. However, profitability moved the wrong way.
Net income plummeted 54% to $24.3 million, adjusted EBITDA declined around 6%, and free cash flow fell 34%, a decline the company blamed on collection timing rather than a structural issue. Management did improve full-year fiscal 2027 revenue expectations, but only slightly, from $664-$676 million to $671-$681 million, a shift of approximately $6 million at the midpoint. That's only a 5% growth, a significant decrease from the 13% rise Doximity, Inc. (NYSE:DOCS) achieved the previous fiscal year.
The second-quarter guidance implies only 1% year-over-year increase, which is roughly in line with what analysts predicted, thus providing no major upside surprise for the current quarter. That is the essence of Doximity's "good numbers, bad reaction" dilemma in reverse: the market originally reacted to a single bullish announcement regarding AI Search margins, rather than the underlying quarter, which showed slowing growth and declining profitability. Analysts have been blunt about the disconnect.
According to Jessica Tassan of Piper Sandler, the revised outlook looks to be primarily a pass-through of the Q1 beat rather than a true indication of the AI Search opportunity CEO Tangney highlighted on the call, given that the company earned no AI Search revenue during the quarter. That said, not everything is bearish. Doximity's enterprise business showed actual strength, with 112% net revenue retention among its top 20 clients and 127 enterprise customers now producing more than $500,000 in annual recurring revenue, all while maintaining a strong 48% adjusted EBITDA margin.
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