🖊 Is DocuSign Investors’ Patience Wearing Thin?

Tesla seeks approval for stock split.

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

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🖊 DocuSign: What The Investors Want?

A deal with Microsoft (MSFT) is usually a cause to cheer for most companies – not for DocuSign (DOCU). Investors of the world’s largest digital signatures company have more reasons to worry about, such as profitability. Will DocuSign ever manage to make it to the black?

Big Clients; Bigger Growth

Towards the fag end of the dot-com bust in 2000, the US government passed the ESIGN Act to increase the adoption of electronic signatures. The act permitted the use of eSignatures in a court of law and the validity and enforceability of electronic documents.

DocuSign was founded in 2003 to address this growing market. Its first client was zipForm, which integrated DocuSign into its virtual real estate forms in 2005. By 2010, DocuSign handled 73% of the electronic signature market, and by 2012, PayPal, Google Drive, and Salesforce signed on as customers.

In February 2014, DocuSign and Microsoft announced a long-term strategic partnership. The deal was to make DocuSign’s eSignature apps available from within Microsoft’s Office 365 platform and be integrated within Outlook, Word, SharePoint Online, and SharePoint Server 2013.

In its first decade of operations, DocuSign had managed to sign up only 54K customers. As more and more organizations realized the ease of doing business with digital signatures, they turned to DocuSign. In the next seven years, DocuSign’s customer base grew 10x to 589K. 

The pandemic and lockdowns made it challenging for anyone to accept physical signatures. Digital signatures were the only reasonable way to get business done. That was the proverbial shot-in-the-arm that DocuSign needed. By June 2021, the company signed its one-millionth customer.

DocuSign celebrated the milestone in a blog post where it touted the use of digital signatures as having saved 20B sheets of paper, 3M trees, and 3B gallons of water.

By the end of FY22, DocuSign had doubled its customer base. The company went public in April 2018 at $38 apiece. Shareholders in equal proportion duly rewarded the company’s beyond-belief growth. By September 2021, the stock peaked at $314, ~9x its IPO price.

Big Deal? No Big Deal

Just two days before announcing its quarterly results, DocuSign announced the expansion of its global strategic partnership with Microsoft. The move was to enhance the “anywhere economy” where people collaborate and decide on agreements anywhere in the cloud.

The new collaboration will make DocuSign’s eSignature available on Microsoft Teams, Microsoft 365, and DocuSign CLM for Microsoft Word. Shareholders had something to cheer for, albeit briefly.

Every time DocuSign announced results over the past three quarters, the following day, its shares declined 42%, 19%, and 24.5%, respectively. For Q1 FY2023, DocuSign’s revenue surpassed expectations while EPS missed estimates.

Key Highlights From Q1 FY23:

  • Revenue: $588.7M Vs $581.8M expected
  • Earnings Per Share: $0.38 Vs $0.46 expected

Y-o-Y, DocuSign’s revenue grew 25%, the slowest in its history as a public company. This was also the fourth straight quarter of revenue growth decelerating. Total customers at the end of the quarter stood at 1.24M compared to 1.17M in Q4 and 988K in Q1 FY22. Net loss widened to $27.4M from $8.3M Y-o-Y.

For the current quarter, DocuSign expects revenue growth to slow further to 22% Y-o-Y to $602M, lower than analyst expectations of $604.6M. In addition, it maintained its full-year revenue guidance but cut its billings guidance to ~$2.53B, down $200M from the earlier projections of $2.72B.

Normalized work conditions, rising interest rates, and the war in Ukraine have now taken center stage and are responsible for the slowing growth rate, with one analyst moaning the company’s core growth story is “essentially over.”

The slowing growth has outweighed the positives even as DocuSign sits on $1B in cash on its books. DocuSign’s shares are down 80% from their peak. The management says its plan is underway to reignite its “enviable” growth. Investors, however, haven’t yet warmed up to that sentiment.

Market Reaction
DOCU ended at $65.93, down 24.53%.

Company Snapshot 📈

DOCU $65.93 -21.43 (24.53%)

Analyst Ratings (19 Analysts) BUY 32%  HOLD 58%  SELL 10%

Newsworthy 📰

Joining The League: Tesla to seek investor approval for 3-for-1 stock split (TSLA -3.12%)

Results: Three-dose Pfizer Covid vaccine works safely in young children, review says (PFE -3.50%)

Another Case: Apple, Google face new antitrust investigations in the UK (AAPL -3.86%)

Later Today 🕒

  • Oracle Corp. Earnings (ORCL)
  • Azure Power Global Ltd. Earnings (AZRE)
  • 8:30 PM IST: New York Fed Inflation Expectations

Today’s Fun Fact

As of 2022, Nucor Corporation has increased dividend payout to investors for 49 straight years

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