Doximity at the Crossroads: Can AI-Driven Momentum Overcome Near-Term Headwinds?

Healthcare tech leader Doximity (DOCS) stands at a pivotal juncture: its Q4 2024 earnings reflect short-term headwinds, with revenue growth moderating to an estimated 13% year-over-year—a slowdown from prior quarters’ torrid pace. Yet beneath the surface, a compelling narrative unfolds. The company’s AI tools are experiencing explosive adoption, with usage surging 60% sequentially in Q3 2024, signaling a scalable, high-margin future. For investors willing to look beyond near-term noise, Doximity’s AI-powered playbook could unlock a 10% revenue target for 2026—and justify a buy rating today.

The Near-Term Doldrums: Pull-Forward Effects and Macro Pressures

Doximity’s Q4 revenue growth of 13% YoY marks a deceleration from earlier quarters, driven by two factors:
1. Pull-Forward Effects: A surge in client renewals ahead of Q4 2023 created a tough comp. For example, the pharma client portal’s rapid adoption in late 2023—driven by its AI-powered ROI analytics—pulled forward demand into that period.
2. Health System Stagnation: Hospitals, a key revenue segment, face post-pandemic financial pressures. Health system revenue growth is projected to remain flat in 2025, weighing on near-term performance.

The Long-Term Catalyst: AI as the Engine of Scalability

While macro challenges loom, Doximity’s AI tools are carving a path to durable growth. Key trends:
- AI-Driven Engagement:
- Q3 2024 saw AI prompts (e.g., clinical decision support, prior authorization workflows) double sequentially, hitting 1.8 million. These tools are embedded into core workflows like telehealth, digital fax, and scheduling—areas where Doximity commands 80% market share of U.S. physicians.
- The AI-powered news feed now reaches 900,000 unique prescribers monthly, with personalization algorithms driving 25% higher click-through rates than static content.

• Margin Expansion via AI:
• AI is automating low-margin tasks, such as sales forecasting and contract analysis. This has boosted adjusted EBITDA margins to 50.4% in Q4 2024, up from 47.8% a year earlier.

• The client portal—used by 20% of pharma brands—now completes ROI studies in minutes (vs. months), reducing costs and boosting gross margins to 91%.

• Upselling Pharma Clients:

• Doximity’s multi-module programs, bundling newsfeed, point-of-care tools, and formulary solutions, are growing at twice the pace of standalone products. These high-margin offerings now account for 40% of pharma revenue, up from 25% in 2023.
• By 2026, AI will unlock $100M+ in incremental revenue from small- and mid-sized pharma brands (currently contributing just 8% of revenue).

The 2026 Target: A 10% Growth Milestone Within Reach

Doximity’s FY 2026 guidance of $619M–$631M in revenue implies 8–10% growth from FY 2025’s $570M. This is achievable through three levers:
1. Workflow Penetration:
- Telehealth: 580,000+ monthly active prescribers use Doximity’s EHR-integrated tools, but only 30% of eligible providers are onboarded. Full adoption could add $150M+ in revenue.
- Recruitment AI (Recruit GPT): Personalized job listings are driving 2x click-through rates, with hospitals paying 30% premiums for AI-enhanced recruitment services.

1. Pharma Upsells:
2. The client portal’s third phase (launching late 2025) will automate content creation and optimization, reducing pharma’s reliance on costly agencies. This could boost margins by 200–300 bps for these clients.

3. With 81% of pharma revenue concentrated among top clients, Doximity is targeting deeper upsells here—e.g., bundling AI-driven market research with existing contracts.

4. Margin Discipline:

5. AI’s operational efficiency is projected to lift adjusted EBITDA margins to 60% by 2026, from 50.4% today. This will offset any macro-driven revenue softness.

Why Buy Now? The Case for Immediate Action

• Valuation Discount: Doximity trades at 15x 2025E EBITDA, below its 18x five-year average. This discount ignores AI’s margin tailwinds and underestimates workflow adoption’s upside.
• Technical Catalyst: The stock’s 50-day moving average is near $14.50, with relative strength improving as AI adoption metrics gain visibility.
• Risk/Reward: Near-term headwinds are priced in, while the 2026 target offers a 40%+ upside from current levels.

Risks to Consider

• Health System Slowdowns: If hospitals delay AI-driven recruitment tools, Doximity’s growth could lag.
• Regulatory Scrutiny: HIPAA compliance for AI tools like Doximity GPT remains a hurdle.

Conclusion: The AI Transition Has Begun—Act Before It’s Priced In

Doximity’s Q4 softness is a temporary stumble in a marathon. Its AI tools are not just incremental—they’re redefining healthcare workflows, pharma marketing, and recruitment. With a clear path to 10% revenue growth in 2026 and a compelling valuation, now is the time to position in this AI leader. The pull-forward effects and macro headwinds are transient; the AI-powered future is here.

Action Item: Buy Doximity (DOCS) at current levels for a 12–18 month horizon.