🖊 Did DocuSign Get A Reality Check?

Stitch Fix tanks; Ford to invest in Thailand.

Hey Global Investor! Here’s what you need to know before the US markets open.

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S&P 500 (Tuesday’s Close) 4,686.75 +95.08 (2.07%)

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🖊 DocuSign: Sign On The Wall?

During the pandemic, DocuSign Inc. (DOCU) shares shot into the stratosphere as agreement signing went digital. What a difference a few months make! Last Friday, investors pressed the panic button after DocuSign released its Q3 results. Even if it beat analyst estimates, the stock spiraled down like nobody’s business. (Tweet This)

The Pandemic Boost

For Q3 of fiscal 2022, DocuSign surpassed analyst expectations as the company continued to benefit from the remote working trend and the adoption of e-signatures in more industries.

Key Stats From Q3:

  • Revenue: $545M Vs $531M expected
  • EPS: $0.58 Vs $0.46 expected

Growth in revenue Y-o-Y was 42%. It was the sixth straight quarter of revenue growth of over 40%. Subscription revenue, which contributes the majority of DocuSign’s revenue, grew 44% Y-o-Y to $528.6M. Gross margins rose to 79% in Q3 compared to 74% last year.

So no matter how one looks at it, the company comprehensively beat Street estimates. Last quarter, the company also announced the expansion of its global strategic partnership with Salesforce (CRM), making it easier for customers to facilitate global agreements.

Also part of the announcement was the launch of DocuSign Ventures, its corporate venture arm that would co-invest in and partner with startups trying to innovate the agreement process.

DocuSign’s customer growth since the end of FY13 has registered a CAGR of 41% – staggering by any means. Back then, the company had close to 54K customers. At the end of Q3, that number stood at 1.11M. During the pandemic, DocuSign’s shares rose 3X as business benefited from the broad digital shift across industries.

All good. Right? Wrong!

No Room For Error

DocuSign’s guidance for Q4 missed analyst expectations. For Q4, the company expects revenue of ~560M, lower than the $573.8M estimated by analysts. Revenue guidance for the full fiscal 2022 was unchanged at $2.1B, implying a 30% growth Y-o-Y compared to the 40+% growth the company had shown in the past.

DocuSign had highlighted in the past that the pandemic-related tailwinds would taper off eventually. Only they didn’t expect that to start happening so soon. CEO Dan Springer even clarified the slowing growth had more to do with the sales teams’ focus on meeting current demand at the expense of new sales and less to do with the external environment.

DocuSign’s International President and former CFO, Michael Sheridan, resigned and left the company on November 30. These bits and pieces were enough to trigger concerns about the shares being overvalued.

And thus, on Friday, the shares dropped 42% – the biggest seen by the company since it went public in 2018. Last year, DocuSign’s market cap breached the $50B mark on the euphoria of everything going digital. In one fell swoop, $20B in market cap vaporized. It didn’t help that analysts have halved their expected price per share in the face of DocuSign’s expectations for the year.

Shares of DocuSign are down 60% from the peak of $314 it achieved in August this year. Whatever the company has been able to accomplish thus far, the investors are sending the signal that DocuSign’s margin for error is very low, if not zero. Although the shares are still up 5x from their IPO price, the company can hardly afford any further slip-ups.

Market Reaction
DOCU ended at $138.60, down 3.67%. Shares are down 38% this year.

Company Snapshot 📈

DOCU $138.60 -5.28 (3.67%)

Analyst Ratings (20 Analysts) BUY 65%  HOLD 30%  SELL 5%

Newsworthy 📰

Action: Kellogg to permanently replace striking employees as workers reject new contract (K -0.79%)

Cut: Stitch Fix cuts revenue forecast for fiscal year despite topping earnings estimates (SFIX -17.86%)

Capex: Ford to invest $900M in Thailand plants for Ranger and Everest SUV (F +3.85%)

Later Today 🕒

  • Brown-Forman Corporation Earnings (BF.A)
  • UiPath Inc. Earnings (PATH)
  • Campbell Soup Company Earnings (CPB)
  • Thor Industries Inc. Earnings (THO)
  • H&R Block Inc. Earnings (HRB)
  • Weber Inc. Earnings (WEBR)
  • Korn Ferry International Earnings (KFY)
  • Udemy Inc. Earnings (UDMY)
  • United Natural Foods Inc. Earnings (UNFI)
  • Torrid Holdings Inc. Earnings (CURV)
  • Photronics Inc. Earnings (PLAB)
  • Sportsman’s Warehouse Holdings Inc. Earnings (SPWH)
  • 8:30 PM IST: Job openings & Job quits

Today’s Market Terminology: Fiscal Deficit

A fiscal deficit is a shortfall in the government’s income compared to its spending. It is calculated as total amount spent in excess of income

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