DocuSign shares are trading nearly 80% below their high from last September when the company announced it had captured 70% of the e-signature market. The company ended the first quarter of fiscal 2023 with a total of 1.24 million customers, up 25% from a year ago. Most Fortune 500 companies use the company’s services. However, investors should be wary of the company’s disappointing earnings report.
DocuSign’s Core Growth Story is Now Essentially Over
In the first quarter of 2019, DocuSign raised $690 million through a convertible note offering. The company still has $500 million in cash, and this provides plenty of dry powder to absorb the remaining wet ink. In fact, the company has been adding corporate customers at a brisk pace, with the company’s revenues growing by 45% year over year. Even though the company has largely outperformed expectations, it’s hard to see how it can continue to grow.
As DocuSign’s billings guidance has been reduced, the company faces ongoing challenges in the selling environment. The company’s reliance on COVID for business development has delayed its expansion plans for the next two years, and the impact of rising interest rates has slowed international sales growth. As a result, DocuSign’s core growth story is now essentially over.
Although DocuSign is experiencing a slowdown, it still retains a strong strategic value for many organizations. Its acquisition of SpringCM and Seal Software has further increased its value to mega tech companies. Despite a protracted recession, the company can still grow faster than the tech sector and the overall economy. Therefore, investors should keep an eye on DocuSign’s stock price.
The company has become indispensable to customers, transforming itself from an e-signature provider to a cloud-based agreement management service. As it grows as a cloud-based business, it will become a true one-stop-shop for agreement management. And this is a good thing for investors. And the company’s growth trajectory is still in its early stages, but the future looks bright for the company.
Despite the slowdown, DocuSign’s TAM (total annual revenue) has grown substantially in recent years. While e-signature services are a huge part of the company’s revenue, the underlying growth story remains about efficiency. E-signatures are one aspect of the company’s core growth story, but its broader business is document workflow management, analyzing agreements, and generating contracts.
DocuSign’s Revenue Growth Rate Has Slowed
DocuSign shares are crashing after reporting weaker-than-expected first-quarter earnings. The cloud-programming company posted $588 million in revenue, up 25% year over year, but the overall deficit was twice as high as the company had projected. Despite the lackluster numbers, the company remains optimistic about its future. As a result, it’s looking to revamp its go-to-market strategy.
The company announced an expanded partnership with Microsoft, leveraging its products and services for contract management workflows. However, the company is also still suffering from a post-pandemic hangover, as its sales force experienced a higher turnover during the F1Q than in the prior quarter. That has hurt the company’s demand generation efforts, but analysts remain bullish on the long-term prospects of the company.
The company said it would scale back its hiring plan to balance profitability and growth. However, the company’s outlook for second-quarter revenue was revised downward. The company now expects to generate $604 million to $600 million, which was slightly above Refinitiv’s consensus of $547 million. Meanwhile, the company expects to generate revenue between $247 billion and $248 billion by 2023. That’s a significantly higher figure than what Refinitiv projected.
DocuSign’s Lack of Focus on Earnings
After reporting disappointing first-quarter earnings Friday, DocuSign’s stock plunged 25% on Friday. The company cited macroeconomic challenges and the slowing development of existing clients in Europe, which slowed its growth in that region. The company also said it would reduce the number of employees it plans to hire to compensate for the loss. The company also cited a decline in the macroeconomic environment and suspended deals in Europe.
Despite the company’s continued growth in recent quarters, DocuSign’s share price continues to decline. Its first-quarter earnings missed expectations by 43%. It posted a net loss of $27.4 million, or $0.14 per share, compared to a loss of $8.4 million and $0.04 per share in the same period last year. The company’s results also missed analysts’ expectations, sending its stock prices spiraling further.
Despite This Disappointing Report
DocuSign announced an expanded partnership with Microsoft. Microsoft will incorporate its digital signature solution into its contract management workflows. However, the company is still struggling with its post-pandemic hangover. The company reported elevated turnover in its sales force during the F1Q, which stalled its demand generation efforts. JMP Securities analyst Michael Pfeffer believes that DocuSign shares have big upside potential.
After reporting weak first-quarter earnings, DocuSign warned that revenue growth would be muted for the rest of the year. The company’s revenue growth outlook could also be dampened by the recent ruling by the Supreme Court, which narrowly interpreted the law to apply to the new internet. While the company has made some progress in reducing its costs and limiting its employee headcount, investors still face several challenges.
DocuSign’s Sticky Ecosystem
After missing earnings estimates, DocuSign is downgraded by analysts. Wedbush lowered the stock’s rating from outperform to market performance, and analysts at Morgan Stanley have lowered their target price to $50 from $60. The company said it will focus on improving its go-to-showcase process and rustling up requests. However, investors shouldn’t worry too much, as it still has plenty of growth potential.
After missing expectations, DocuSign’s stock price fell 17% in extended trading Thursday. The company’s shares are set to open at levels not seen since November 2019. The company said that it will cut its full-year earnings guidance to reflect the negative impact of its weak revenue. It also acknowledged that it might have been too optimistic about pandemic-era trends. In all, DocuSign’s stock is now down 43% this year, and its stock price is now 2.69 times its 200-period moving average.
Despite delivering a 25% increase in revenue from a year ago, DocuSign missed its earnings guidance. Shares subsequently cratered in extended trading. Despite the disappointing earnings report, the company remains committed to fixing its market challenges. While its revenue and profits grew sharply in the early months of the pandemic, it failed to match expectations. This led to its downward trajectory for the rest of the year.
