DocuSign Stock Making a huge Comeback?

DocuSign (DOCU 7.49%) explosive growth during lockdowns caused by the epidemic hit a wall. Many backers expected digital signatures to be in high demand for reasons other than remote work and social interactions. The convenience of being able to sign legal documents online with just a few clicks of a mouse and a few keystrokes appeared priceless.

DocuSign’s growth slowed as a result, as many companies went back to business as usual. A few people realized the company was doomed and left. DocuSign’s recent results, however, showed signs of life, suggesting the tech stock may be on the road to recovery after a long period of decline.

One that is both winding and lengthy

After the markets closed on Thursday, DocuSign announced its surprisingly robust financial results for the company’s third quarter of fiscal 2023 (ending Oct. 31). There was an 18% increase in sales to $645 million over the previous year. Additionally, adjusted profits per share (EPS) came in at $0.57, which was in line with the same period last year.

Analysts predicted $626.9 million in revenue and $0.42 in adjusted EPS, thus DocuSign did very well.

Subscription income rose 18% to $624 million and accounted for 97% of overall revenue growth. To the tune of $21 million, professional services contributed a whopping 27% rise in overall revenue. Sales were up 17% to $659m as billings, which include changes in deferred revenue, rose. This indicates that expansion may be slowing down. Contradicting this is the fact that its net dollar retention rate dropped (again) to 108% from 110% in the previous quarter.

For the third year in a row, DocuSign has been recognized as a leader in Gartner’s (IT 0.69%) Magic Quadrant for Contract Lifecycle Management (CLM). Out of the 18 service providers evaluated, this one scored the highest in execution. The scope of its vision was likewise highly regarded.

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Possibilities can be found.

DocuSign attracted investors due to the company’s potential to grow both inside the digital signature industry, where it now holds a 75% market share, and within the customer relationship management (CRM) industry. Because of its outsized share of the market, this sector warrants close monitoring. Simply put, we don’t have enough information to know if the company will be successful in taking advantage of this huge opportunity.

By no means am I suggesting that it has reached its peak in the digital signature market? Different sources project different numbers, but the digital signature market is expected to be worth more than $4 billion in 2022 and more than $35 billion by 2029, or a CAGR of 36 percent. Because of its dominant market position, DocuSign has a great deal of opportunity for additional development in its core services.

Management estimates that the total addressable market for both its e-signature and CLM businesses is $50 billion. The company has a long and potentially lucrative runway ahead of it, as seen by projections that its fiscal 2023 sales would peak near $2.5 billion.

Is there planning for further growth?

Management’s future projections suggest that they will continue to offer conservative counsel. During the fiscal fourth quarter ending on January 31, the company predicts revenue between $637 million and $641 million, representing an increase of about 10% at the midpoint. For a company that has performed better than predicted this quarter, that seems oddly low. Perhaps management is anticipating economic volatility when setting expectations.

DocuSign also raised its forecast for the year. For the fiscal year ending January 31, 2023, the firm now expects sales between $2.493 billion and $2.497 billion, representing an increase of over 19% over the previous forecast of 18%.

The current price of the stock is equivalent to just three times the expected sales for the coming year, which is slightly higher than the one to two multiple that most market watchers consider fair. DocuSign may seem like it’s getting cheap, but investors should still tread carefully. A return to the tremendous growth that made this company famous is uncertain while it goes through this period of transformation.

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