Domo (DOMO) Q3 2026: Consumption Contracts Hit 80% of ARR, Driving Durable Retention Gains

December 4, 2025 | By EarningsIQ Research

Domo’s Q3 marked a pivotal shift as 80% of ARR moved to consumption contracts, fueling improved retention and operational leverage. The company’s ecosystem-first strategy is yielding deeper partner ties and a more modular, AI-ready platform, but longer partner-driven sales cycles delayed billings. Management projects the strongest billings growth in over three years for Q4, with visibility underpinned by multi-year contracts and rising usage metrics.

Summary

• Consumption Model Penetration: Shift to usage-based pricing now covers 80% of ARR, accelerating user adoption and retention.
• Partner Ecosystem Expansion: Strategic alliances with cloud data warehouses are deepening, despite longer sales cycles.
• Retention Momentum: Net retention and gross retention rates are both set to improve further as multi-year contracts and usage scale.

Performance Analysis

Domo delivered positive adjusted free cash flow and posted a record operating margin, reflecting disciplined execution and operational efficiency. The company’s transition to a consumption-based model has rapidly scaled, with 80% of annual recurring revenue (ARR) now on usage contracts—up from single digits just two years ago. This model shift is driving a 10% increase in monthly active users and more than doubled unique Cloud Amplifier users, signifying broadening platform engagement.

Billings fell short of guidance due to elongated partner-driven sales cycles, particularly with customers purchasing cloud data warehouse (CDW, third-party cloud data storage and analytics platforms) solutions for the first time. However, management emphasized that these cycles yield stickier, CIO-led relationships and larger, multi-year deals. Current subscription remaining performance obligations (RPO, contracted revenue not yet recognized) grew 3% YoY, while total subscription RPO rose 15%, signaling strengthening long-term visibility. Gross margin softened by 90 basis points YoY due to ecosystem-focused platform investments, but leadership expects margin accretion over time as consumption revenue grows.

• Usage-Driven Upside: Consumption cohort net retention remains above 100%, supporting durable expansion economics.
• Retention Inflection: Gross retention is set to improve to 87% in Q4, with management targeting 90% in the coming year.
• Cash Flow Breakthrough: Positive adjusted free cash flow for each quarter this year, with $6 million projected for the full year.

The shift to multi-year contracts and partner-led go-to-market is providing increased revenue visibility and risk mitigation for the upcoming quarters.

Executive Commentary

Strategic Positioning

1. Consumption Model as Growth Engine

Domo’s pivot to consumption-based pricing has fundamentally reshaped its revenue model, unlocking wider platform access and catalyzing user growth. By removing seat-based licensing barriers, Domo empowers more users per customer—reflected in the 10% YoY increase in monthly active users and strong net retention within the consumption cohort (106%). This model is also driving higher engagement with AI features, creating a feedback loop that supports durable expansion and customer stickiness.

2. Ecosystem-Led Go-to-Market

Deepening partnerships with leading cloud data warehouses (Snowflake, Databricks, BigQuery, Redshift, Oracle) is central to Domo’s strategy. The Cloud Amplifier integration allows Domo to sit atop customers’ existing data infrastructure, magnifying the value of their prior investments and making Domo a neutral, “best-of-breed” analytics layer. This approach is yielding more strategic, CIO-level deals and expanding the company’s pipeline, though at the cost of longer sales cycles. Management highlighted growing interest from partners in OEM relationships, potentially setting the stage for step-function growth in future periods.

3. Modular, Composable Platform

Domo’s move toward composable platform sales allows customers to adopt only the components they need—whether integration, workflow, or AI operationalization. This flexibility accelerates time-to-value and aligns with the modular trends in modern data architectures. Despite this granularity, Domo reports no dilution in average deal size, as even single-component contracts can command substantial value due to the platform’s breadth.

4. AI Differentiation and Recognition

AI adoption is accelerating, with 60% YoY growth in unique accounts using AI features and a doubling of unique users. Domo’s integrated stack—combining connectors, ETL (extract, transform, load), workflow, governance, and visualization—enables customers to operationalize AI at scale. Industry recognition as a leader in agentic AI and embedded analytics further validates Domo’s differentiation and strengthens its competitive moat.

5. Operational Discipline and Profitability

Cost discipline and process efficiency have enabled Domo to achieve its first year of positive adjusted free cash flow, while maintaining growth investments in R&D and go-to-market. Leadership remains committed to the “Rule of 40” balance, with a goal to exit FY27 at 10% billings growth and 10% operating margin. Management flagged that while more investment opportunities are emerging, any incremental spend will be tightly aligned with proven ROI.

Key Considerations

Domo’s Q3 reflects a business in strategic transition, with the consumption model and ecosystem-first approach creating both new opportunities and operational complexities.

Key Considerations:

• Partner-Led Sales Dynamics: Longer sales cycles are a byproduct of larger, more strategic deals involving multiple stakeholders and CIOs, but these are producing more durable relationships.
• Multi-Year Contract Momentum: The growing prevalence of multi-year agreements is boosting RPO and providing improved revenue visibility for Q4 and beyond.
• Retention Upside from Consumption: Customers on usage-based contracts show higher net retention, supporting a continued improvement in overall retention metrics as penetration increases.
• AI as a Value Driver: Rapid adoption and industry accolades position Domo to capture share as enterprises operationalize AI, especially where governance and integration are critical.
• Investment Discipline: Leadership is balancing emerging growth opportunities with a commitment to margin expansion, using internal efficiency gains to fund selected growth initiatives.

Risks

Prolonged partner-driven sales cycles could delay revenue recognition and introduce forecasting uncertainty, especially as Domo’s pipeline becomes more dependent on large, multi-stakeholder deals. Gross margin pressure from ongoing platform investments may persist until higher-margin consumption revenue scales. The competitive landscape in analytics and AI remains intense, with rapid innovation cycles and the risk of customer churn if adoption or integration lags. Management’s medical leave disclosure adds a new layer of leadership continuity risk, though operational processes appear robust.

Forward Outlook

For Q4, Domo guided to:

• Billings of $107.5 to $109.5 million (midpoint 6% YoY growth, highest in over three years)
• GAAP revenue of $78 to $79 million
• Non-GAAP net loss per share of $0.01 to $0.05

For full-year 2026, management maintained guidance:

• Billings of $315 to $317 million
• GAAP revenue of $317.5 to $318.5 million
• Non-GAAP net loss per share of $0.07 to $0.11
• Adjusted free cash flow of approximately $6 million
• Operating margin of 5% (highest ever)

Management highlighted increased billings visibility from multi-year contracts, continued improvement in gross and net retention, and a commitment to exit FY27 with 10% billings growth and 10% operating margin.

• Positive cash flow and profitability expected to continue
• Retention metrics and usage growth are key forward indicators

Takeaways

Domo’s business model transition is unlocking durable growth levers, but requires patience as partner-led sales cycles lengthen. The company’s operational discipline and platform innovation position it to capitalize on AI and analytics adoption trends, with improving retention and multi-year contracts providing a strong foundation for future expansion.

• Business Model Shift: The rapid adoption of consumption contracts is driving higher retention and deeper platform engagement, supporting long-term growth.
• Strategic Partnerships: Ecosystem alliances are expanding Domo’s reach and deepening customer relationships, though at the cost of slower deal velocity.
• Profitability and Efficiency: Sustained focus on cost control and process efficiency is enabling margin expansion without sacrificing growth investments.

Conclusion

Domo’s Q3 marks an inflection point, as the company’s shift to consumption and ecosystem-led sales begins to deliver tangible gains in retention, user growth, and profitability. While near-term billings volatility remains a watchpoint, the underlying business model changes position Domo for sustainable, profitable growth as AI and data-driven decision-making accelerate across industries.

Industry Read-Through

Domo’s results highlight a broader industry pivot toward consumption-based pricing and modular, partner-driven go-to-market strategies in enterprise analytics and AI. The success of deep integrations with cloud data warehouses and the rapid scaling of usage-based contracts signal a shift in customer expectations—flexibility, composability, and ROI-driven adoption are now table stakes. Vendors that can deliver seamless integration, operational AI, and measurable value within customers’ existing data architectures will be best positioned to capture the next wave of enterprise spend. The move to multi-year, usage-based agreements is likely to become a standard for durable SaaS growth and retention across the analytics sector.

DOMO Technology Software Consumption Cloud Data Warehouse AI Retention Partner Ecosystem