Doma: Is this post-SPAC action a good investment?
In 2020, the US stock market has seen a flood of initial public offerings (IPOs) from companies merging with a special purpose acquisition company (SPAC), and 2021 has already seen double the number of IPOs based on SPAC last year. Among this deluge, Doma Holdings (NYSE: DOMA) stands out as an intriguing investment opportunity.
Doma went public in July through a SPAC merger with Capitol Investment Corporation V. The company offers a technology platform that automates many complex processes involved in real estate transactions.
As such, Doma operates in the real estate technology field, often referred to as proptech. Proptech companies seek to disrupt the many archaic procedures entrenched in the real estate industry.
So how is Doma doing in this business? Let’s take a look at the market opportunities and business performance of the proptech expert to understand the long-term potential of investing in their stocks.
Doma Market Opportunity
According to the Wharton School, the real estate sector is one of the few in the United States “to have created immense wealth with little or no know-how and technological interest”. The slow adoption of technology by the industry creates an opportunity for Doma to improve and modernize its real estate operations.
He currently focuses on the closing portion of real estate transactions, such as title, escrow and settlement services. The company charges a fee for these services, which is typical industry practice, but Doma has an advantage: the ability to streamline the closing process through its cloud-based software platform, which uses capabilities such as as data science and machine learning.
For example, Doma says its platform can reduce the typical securities underwriting process from three to five days to less than a minute. Its technology offers efficiencies such as automated title search, finding red flags such as privilege, and presenting this information to relevant parties involved in the real estate transaction.
Doma estimates that its focus area has a total addressable market opportunity of $ 23 billion, and that number may increase in the future. According to the National Association of Realtors, sales of existing homes in the United States topped 5 million last year with a median home price of $ 296,700. Estimates predict that home sales will exceed 6 million properties through 2022.
Doma sees success gaining ground in the real estate industry. Its client list includes massive banks such as chase away and Wells fargo. The explosive growth in revenues also illustrates the growing adoption of enterprise solutions by the industry.
In the second quarter, Doma generated revenue of $ 130 million, an increase of 29% over the previous year. In the first half of 2021, the company saw a 51% year-over-year increase in revenue to $ 257.8 million, from $ 171.2 million in 2020.
Further growth is to come. At the end of the second quarter, Doma’s underwriting services operated in 39 states, while its title and escrow operations were spread across 22 states. The company is working to expand its services to the rest of the United States
The company is aiming for even more opportunities in the years to come. Its platform is designed to extend beyond the closing of real estate transactions. Management intends to expand into other areas such as home appraisal and loan management processes.
Despite the growth, Doma is not perfect. The company recorded a net loss of $ 23.3 million in the second quarter. This is an increase from the net loss of $ 6.3 million last year.
The widening of the net loss is not, however, a red flag. Many tech companies operate at a loss for years to generate early growth before they reach profitability, and Doma is still a very young organization. The company was founded in 2016.
In addition, Doma’s balance sheet is healthy. Its total assets of $ 434.5 million in the second quarter exceeded total liabilities by $ 256.9 million, and it had $ 158.5 million in cash and cash equivalents.
Is Doma share a purchase?
Doma is a company with many positive points. He’s tackling an area ripe for disruption, and his growing year-over-year revenue shows the business is successful.
It forecasts 2021 annual revenue of at least $ 475 million. This would represent the third consecutive year of revenue growth, after $ 410 million in 2020 and $ 358 million in 2019. It may not be the kind of explosive growth seen in some young tech companies, but it This is to be expected given the slow pace of technology adoption by the real estate industry.
Doma’s financial health is strong and offers many opportunities for revenue growth in the years to come. These factors make this recent IPO a worthwhile investment.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.