Shares of e-signature specialist DocuSign (DOCU) have gotten punished over the past twelve months, but investors want to know if now is a good time to bet on a recovery.
The company is scheduled to report second quarter fiscal 2022 earnings results after the closing bell Thursday. 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. Although DocuSign's growth has moderated considerably, there’s still a lot to like in the quarters and years ahead. But the management must outline what that growth will look like.
While the company remains the leader in the e-signature space, including the recent move to the contract agreement cloud, the market is seemingly less confident that DocuSign can regain the growth rates achieved at the height of the pandemic. The massive decline in the stock suggests investors aren’t sure whether the company can grow at all. In the most recent quarter, the net dollar expansion rate regressed, falling 114%, compared to rates of 125% in 2021.
What’s more, the Billings guidance for the just-ended quarter was about flat, which suggests low take rates. And it certainly hasn’t helped that Dan Springer, the company’s CEO, departed a week after Q1 earnings were announced. All of that aside, the stock is now at a very attractive valuation. But to reverse the negative downward trend, DocuSign must issue strong revenue growth forecast for next quarter and fiscal year 2022.
In the three months that ended July, the San Francisco, Calif.-based company is expected to earn 42 cents per share on revenue of $602.34 million. This compares to the year-ago quarter when earnings were 47 cents per share on revenue of $511.84 million. For the full year, ending in January, earnings are expected to decline 14% to $1.70 per share, while full-year revenue of $2.47 billion would rise 17.3% year over year.
There’s no question that work-from-home beneficiaries, many of which soared during the pandemic, have fallen out of favor with investors. As with other work-from-home winners, the company has been a victim of its own success, facing much tougher year-over-year comparisons. But DocuSign, which also aims to service the entire deal process, including supporting any action that is required once the agreements have been signed, still has lasting potential.
Until then, however, the company must operate under lowered expectations amid decelerating growth which surfaced again in the first quarter, during which revenue of $588.7 million grew just 25.5% year over year. While that was enough to beat estimates by nearly $7 million, it marked a growth declaration of nine percentage points from the Q4 and 17 percentage points from Q3.
What’s more, the Q1 adjusted EPS of 38 cents missed by 8 cents, which comes on the heels of Q4 during which its 48 cents only came inline with estimates.
The reaction to the stock wasn’t positive evidenced by the 16% decline. But it wasn’t all bad news. Billings, a closely-watched metric, rose 16% year over year to $613.6 million, and Subscription revenue rose 26% to $569.3 million. The company’s guidance, however, didn’t suggest that growth will immediately reaccelerate. To reverse the negative downward trend in the stock price, DocuSign on Thursday 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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