DOCS Q3 Deep Dive: AI Integration and Upsell Timing Drive Revenue, Margin Pressures Emerge

Medical professional network Doximity (NYSE:DOCS) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 23.2% year on year to $168.5 million. The company expects next quarter’s revenue to be around $180.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.45 per share was 18.7% above analysts’ consensus estimates.

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StockStory’s Take

Doximity’s third quarter results were marked by strong revenue and profit outperformance relative to Wall Street expectations, yet the market responded negatively. Management attributed the quarter’s performance to rapid adoption of AI-powered workflow products, integration of the Pathway acquisition, and a shift in customer upsell timing. CEO Jeffrey Tangney highlighted surging engagement with new features, particularly the AI scribe and DoxGPT tools, which saw user numbers rise sharply. CFO Anna Bryson emphasized that earlier and more evenly distributed upsells, driven by integrated programs, contributed to a higher portion of annual revenue being recognized in this quarter.

Looking ahead, Doximity’s updated guidance is shaped by greater adoption of integrated, AI-optimized programs and increased engagement from agency partners, especially among smaller and mid-sized clients. Management pointed to uncertainty in pharmaceutical client budgets for next year, citing ongoing policy debates and shifts in direct-to-consumer advertising as possible headwinds. Bryson noted, “We will continue to take a measured approach to unbooked revenue,” while emphasizing that investments in AI and integrated solutions are expected to yield longer-term predictability and client retention.

Key Insights from Management’s Remarks

Doximity’s management credited AI product uptake, customer engagement, and a shift in upsell timing as key drivers of Q3 results, while acknowledging evolving industry trends and new policy headwinds.

• AI products drive user growth: Management reported over 50% quarter-on-quarter growth in active users of AI-powered tools, including DoxGPT and the Scribe feature, citing time savings and enhanced workflow efficiency for clinicians.
• Integrated programs reshape upsell cycle: CFO Anna Bryson explained that the introduction of multi-module, AI-optimized offerings led to a more balanced upsell pattern over the year, reducing the traditional year-end revenue surge and improving client confidence in incremental purchases.
• Pathway acquisition integration: Doximity quickly integrated Pathway’s medical data and AI models into DoxGPT, enabling instant, peer-reviewed drug reference and seamless access to over 2,000 medical journals, which management believes differentiates its AI suite from competitors.
• Agency partners expand SMB reach: The company’s agency partnership program facilitated significant growth among small and medium-sized pharmaceutical clients, with bookings in this cohort doubling year-over-year, aided by improved client portal capabilities.
• Margin pressures from AI investment: While operating margins remained robust, management acknowledged rising expenses tied to scaling AI tools and supporting infrastructure, suggesting that near-term margin expansion will moderate as the company continues platform investments.

Drivers of Future Performance

Management’s outlook is driven by ongoing AI investments, broader adoption of integrated programs, and evolving customer budget dynamics amid policy uncertainty.

• Integrated programs adoption: The company expects continued expansion of AI-optimized, multi-channel offerings, which management believes will promote more predictable revenue and client retention as customers shift to longer-term, single-line-item contracts.
• Pharma client budget timing: Management anticipates that uncertainty in pharmaceutical marketing budgets—due to policy changes and regulatory scrutiny of direct-to-consumer advertising—could influence the pace of bookings and revenue realization in upcoming quarters, particularly during the annual upfront cycle.
• AI investment and scaling: Doximity plans to maintain elevated investment levels in AI product development and infrastructure, while seeking operational efficiencies as products mature. Bryson noted that despite short-term costs, the company aims to keep adjusted EBITDA margins above 55% for the year.

Catalysts in Upcoming Quarters

Looking forward, our analysts will monitor (1) the pace of adoption and monetization for Doximity’s integrated AI programs, (2) clarity and trends in pharmaceutical client budget allocations as annual contracts are finalized, and (3) the impact of increased AI investment on operating margins. Developments in industry policy and client engagement with new workflow tools will also be key signposts.

Doximity currently trades at $57.72, down from $62.53 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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