There’s no question that work-from-home beneficiaries, many of which soared during the pandemic, have fallen out of favor with investors. The decline they have suffered during this year's tech selloff have caused investors to wonder whether the stocks ever deserved their massive valuations.
In the case of DocuSign (DOCU), the company continues to deliver solid results. Although growth has moderated, there’s still a lot to like in the quarters and years ahead. When the e-signature specialist reports first quarter fiscal 2022 earnings results after the closing bell Thursday, management must outline what that growth will look like. Shares have gotten clobbered over the past few months, falling more than 65% in six months, and are down 34% year to date, compared to an 8% decline for the S&P 500 index.
Given the stock’s punishment, investors who are currently on the sidelines want to know if the bottom is in. Enabling individuals and businesses the ability to digitize an agreement process has been a key factor in DocuSign’s rise during the pandemic as enterprises shifted to remote work.
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. The market, however, has become concerned about DocuSign’s ability to maintain its impressive growth since the pandemic has gotten under control. The company ending FY22 with billings growth of only 25%, which is down significantly from 56% in Q4 2021. To reverse the negative downward trend in the stock price, DocuSign must issue strong revenue growth forecast for next quarter and fiscal year 2022.
In the three months that ended April, the San Francisco, Calif.-based company is expected to earn 46 cents per share on revenue of $581.85 million. This compares to the year-ago quarter when earnings were 44 cents per share on revenue of $469.08 million. For the full year, ending in January, earnings are expected to decline 1% to $1.96 per share, while full-year revenue of $2.48 billion would rise 17.6% year over year.
DocuSign’s operating metrics have fueled the negative response seen the stock. As with other work-from-home winners, the company has been a victim of its own success, facing much tougher year-over-year comparisons. For starters, the company’s Q4 revenue beat was strong, coming in at $580.83 million, up 34.79% year over year, topping consensus estimates by more than 3%. However, the 34.79% revenue growth compares to growth of 42% in Q3 and growth of 57% in Q4 of the year prior. The adjusted EPS of 48 cents came inline with estimates.
Investors took a negative reaction of the inline EPS, given that strong beats DocuSign had posted in the previous quarters where its beat ranged from 20% to 200%. But it wasn’t all bad news. During the quarter, subscription revenue rose 37% year over year to $564 million, while billings were $670.1 million, up 25% year-over-year. The company’s guidance, however, didn’t suggest that growth will reaccelerate anytime soon.
The company guided Q1 revenue to be in the range of $579 to $583 million. The mid-point of that range implies revenue growth of 24%, which would be down more than ten percentage points sequentially. In other words, DocuSign’s revenue peaked more than a year ago, along with stock. To reverse the negative downward trend in the stock price, DocuSign must issue strong revenue growth forecast for next quarter and fiscal year 2023.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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