Shares of DocuSign (DOCU) have fallen almost 20% over the past week, including a decline of 10% Tuesday in sympathy to the numbers delivered by fellow work-from-home (WFH) high-flyer Zoom Video (ZM). The latter plunged more than 15% despite a beat-and-raise quarter. Will DocuSign suffer the same fate?
The e-signature specialist is set to report third quarter fiscal 2021 earnings results after the closing bell Thursday. As with Zoom, DocuSign — which provides individuals and businesses the ability to digitize the agreement process — has been a WFH winner. Aside from being the leader in electronic signatures, DocuSign aims to service the entire deal process, including supporting any action that is required once the agreements have been signed. Boasting hundreds of millions of users, with more than 660,000 paying customers, it has enjoyed rapid growth.
Total Q2 revenue was up 45%, while subscription revenue surged 47%. The company is seen not only as indispensable during the pandemic, but estimates suggests DocuSign can sustain post-pandemic success. But with the stock now up 210% year to date, compared with a 12% rise for the S&P 500 index, investors want to know when will valuation begin to matter?What’s more, as coronavirus vaccine candidates have begun to show success, concerns have been raised about whether DocuSign can sustain its astronomical growth rate.
As such, the market will want to see how DocuSign can diversify with its other products such as its contract lifecycle management platform which is seen as a strong growth candidate for in the years ahead. Investors will also listen for how the company plans to outline its path towards profitability. In other words, for the stock to keep climbing, DocuSign needs a breathtaking quarter and upside guidance to sustain the momentum.
In the three months that ended October, the San Francisco, Calif.-based company is expected to earn 13 cents per share on revenue of $361.15 million. This compares to the year-ago quarter when earnings were 11 cents per share on revenue of $249.50 million. For the full year, ending January, earnings are expected to rise 87% to 58 cents per share, while full-year revenue of $1.39 billion would rise 42.2% year over year.
As strong as these quarterly projections appear for DocuSign, they still seem somewhat conservative, given that it controls an estimated 70% of the e-signature market. According to some estimates, the electronic signature market is now at $25 billion and growing. This puts DocuSigns total addressable market, including its SaaS platform, at around $50 billion. In September, the company guided for Q3 revenue between $358 million to $362 million, which assumes 45% growth.
In the first two quarters of the year, DocuSign has added 166,000 new customers, which easily surpassed the 112,000 first-half total of 2019. For some context, its customer base has surged some 75% from just two years earlier, when it had 429,000. What’s more, in Q2 the company reported that 520 customers had an average annual contract value of greater than $300,000, up 41% year over year. In other words, DocuSign is acquiring the number of customers and type of customers that see value in its product.
On Thursday, investors will want to see that these growth trends are not only sustainable, but also improving. And if DocuSign can outline its path towards sustained profitability, the stock may yet be cheap despite its year-to-date performance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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