Domo (DOMO) Q2 2026: Consumption ARR Hits 75%, Unlocking AI and Partner-Led Expansion
Domo’s consumption-based model now drives over three-quarters of ARR, marking a decisive pivot away from legacy seat licensing and catalyzing new ACV growth, partner leverage, and AI-driven use cases. Strategic alliances with cloud data warehouse leaders and hyperscalers are just beginning to show operational impact, with management signaling further acceleration in the coming quarters. Investors should focus on the durability of this transformation as Domo’s ecosystem and product innovation reshape retention and expansion economics.
Summary
- Consumption Model Penetration: Over 75% of ARR now on usage-based contracts, driving higher retention and expansion.
- Partner Ecosystem Momentum: Deepening alliances with CDWs and hyperscalers are fueling pipeline and accelerating multi-year wins.
- AI Infrastructure Tailwinds: Domo’s unified stack and AI focus position the company to capture increasing enterprise spend on modern analytics platforms.
Performance Analysis
Domo delivered a milestone quarter, exceeding guidance on billings and revenue, and achieving its first positive non-GAAP EPS and free cash flow. The company’s transformation is most visible in its rapid migration to consumption-based contracts, which now represent over 75% of annual recurring revenue (ARR) and are projected to surpass 85% by year-end. New annual contract value (ACV) growth accelerated to nearly 20%—the highest in over three years—while salesforce productivity surged 67% year over year, reflecting operational leverage from the new go-to-market strategy.
Subscription remaining performance obligations (RPO) grew 19% year over year, with total subscription RPO reaching a record $409.8 million. Gross retention held steady at 85% but is expected to improve in Q4 as more customers transition to multi-year consumption deals, which management notes deliver both higher gross and net retention than legacy seat-based contracts. International momentum, particularly in Japan, further diversified growth, with new ACV nearly doubling in the region.
- Margin Expansion: Subscription gross margin rose to 81.9%, and operating margin reached a record 7.7%, aided by disciplined expense management and revenue outperformance.
- Free Cash Flow Inflection: Adjusted free cash flow was positive at $1.4 million, a $7 million improvement year over year.
- Billings and Pipeline: Billings of $70.3 million exceeded guidance, supported by a robust pipeline of partner-sourced opportunities that are only beginning to impact results.
The combination of product-led expansion, partner leverage, and improved retention mechanics is fundamentally reshaping Domo’s growth and profitability profile.
Executive Commentary
"Two years ago, we had zero cloud data warehouse partners, or CDW partners. Today, we have five of the largest and most important CDWs. Back then, consumption customers were just a few percentage points of our ARR, and now over 75% of our ARR is on consumption. What an incredible transformation in just two years."
Josh James, Founder and CEO
"We exceeded our Q2 guidance for billings, revenue, and non-GAAP EPS and were adjusted free cash flow positive...Our highly productive Salesforce drove our strongest new ACV growth in several years, and productivity is now near record highs and at a level that supports sustainable, efficient growth."
Todd Crane, Chief Financial Officer
Strategic Positioning
1. Consumption Model Drives Retention and Upsell
Domo’s shift from seat-based to consumption-based pricing is unlocking wall-to-wall adoption, higher net retention rates, and broader use case penetration. Management highlighted that customers who initially purchased on consumption contracts posted a 108% net revenue retention (NRR), outpacing legacy cohorts. The model enables frictionless expansion and aligns value with usage, removing the “revenue prevention” effect of seat licensing and making it easier to scale across enterprises.
2. Partner-Led Ecosystem as Growth Engine
Deep integration with cloud data warehouse (CDW) partners—Snowflake, Databricks, Oracle, and Google—has become a new growth avenue. Domo’s presence at flagship events generated thousands of qualified leads, and partner-sourced opportunities are moving rapidly through the pipeline. These partners bring higher close rates and enable Domo’s solutions to be purchased through their marketplaces, streamlining procurement and accelerating deal cycles. Management expects the impact of these alliances to compound as joint selling and co-marketing expand.
3. AI-Ready Platform and Infrastructure Alignment
Domo’s unified platform, built for AI and large language model (LLM) enablement, positions it at the intersection of rising enterprise demand for actionable, end-to-end analytics solutions. The company’s stack offers data integration, ETL (extract, transform, load), semantic layers, workflow automation, and governance, all critical for AI-driven business intelligence. Customer wins increasingly cite AI features and agentic solutions as differentiators, supporting higher-value, longer-term contracts.
4. International and Vertical Diversification
Japan emerged as a standout region, with new ACV nearly doubling and renewals posting NRR close to 130%. Domo’s international growth spans industrials, tech, retail, and oil and gas, with high retention and strong implementation quality. The company’s Japanese brand resonance and tailored services model support ongoing expansion in this market.
5. Operational Discipline and Profitability Trajectory
Cost discipline and focused investment in AI, partner enablement, and R&D have enabled margin expansion without sacrificing growth. Domo is scaling back distractions, reallocating resources to high-ROI areas, and targeting Rule of 40 exit metrics of 6% for both billings growth and non-GAAP operating margin this year, with a path to 10% by FY27.
Key Considerations
Domo’s Q2 marks a clear inflection point in its business model and operating leverage, but the durability of these gains will depend on execution across several vectors.
Key Considerations:
- Consumption Model Uplift: Sustained uplift in net retention and expansion depends on continued customer migration and successful multi-year renewals under the usage-based framework.
- Partner Pipeline Conversion: The scale and velocity at which CDW and hyperscaler leads convert into closed deals will determine the magnitude of future billings acceleration.
- AI Use Case Penetration: Domo’s ability to deliver differentiated AI-driven business value will be tested as enterprise buyers seek outcomes beyond dashboards.
- International Scaling: Replicating Japan’s success across other regions and verticals could provide incremental growth tailwinds.
- Gross Retention Improvement: Management expects meaningful improvement in Q4, but sustained gains are needed to underpin long-term growth and margin targets.
Risks
Domo’s strategy hinges on continued partner engagement, competitive differentiation in AI, and seamless customer migration to consumption contracts. Risks include slower-than-expected partner pipeline conversion, potential price compression from marketplace procurement, and the need to further improve gross retention from current levels. Macro uncertainty or shifts in enterprise IT budgets could also impact infrastructure and analytics spend, especially for longer-cycle international deals.
Forward Outlook
For Q3, Domo guided to:
- Billings of $75.5 to $76.5 million
- GAAP revenue of $78.5 to $79.5 million
- Non-GAAP net loss per share of $0.03 to $0.07
For full-year 2026, management raised guidance:
- Billings of $317 to $321 million
- GAAP revenue of $316 to $320 million
- Non-GAAP net loss per share of $0.11 to $0.19
Management cited several drivers of confidence:
- Consumption renewals and multi-year contracts expected to drive Q4 retention uplift
- Partner pipeline and AI infrastructure spend providing incremental growth tailwinds
Takeaways
Domo’s transformation to a consumption and partner-led model is reshaping its growth and profitability trajectory, but investors should monitor retention gains and partner pipeline execution closely.
- Business Model Shift: Usage-based contracts now dominate, enabling broader adoption and improved expansion metrics.
- Ecosystem Leverage: CDW and hyperscaler partnerships are only beginning to impact results, with significant upside if conversion rates hold.
- Execution Watch: Sustained improvement in gross retention and continued AI-driven product innovation will be critical for durable outperformance.
Conclusion
Domo’s Q2 results validate a multi-year transformation, with the consumption model and partner ecosystem unlocking new levels of growth and margin expansion. The next phase hinges on realizing the full potential of these channels, further improving retention, and capitalizing on AI tailwinds to drive wall-to-wall enterprise adoption.
Industry Read-Through
Domo’s experience underscores a broader industry pivot toward consumption-based pricing and ecosystem-centric go-to-market strategies in enterprise analytics and AI infrastructure. As legacy seat-based models give way to usage-driven frameworks, vendors that can deeply integrate with hyperscalers and CDWs stand to benefit from streamlined procurement, higher expansion rates, and broader solution adoption. The success of Domo’s AI-first, unified platform approach signals that buyers are increasingly seeking end-to-end stacks capable of supporting advanced analytics and automation, a trend likely to accelerate across the business intelligence and data infrastructure landscape.