Shares of DocuSign (DOCU) have rebounded strongly over the past six months, rising more than 30%, compared to a 16% gain for the S&P 500 index. Not only is the stock up 33% year to date, besting the 19% rise in the S&P 500 index, the shares have surged almost 70% since reaching a low of $180 on May 13. But is now the time for profit-taking?
The e-signature specialist is set to report second quarter fiscal 2021 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. The company’s growth has shown no signs of slowing down. 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 800,000 paying customers, the company has enjoyed rapid growth. Guiding for more than 40% year over year growth in the current fiscal year, the company has begun to diversify its revenue stream with other products such as its contract lifecycle management platform which is seen as a strong growth candidate for in the years ahead. The management has placed the company’s total addressable market near $50 billion, highlighting how under-penetrated the market remains.
But with the stock currently at all-time highs, the company on Thursday must outline its path towards profitability to keep the shares from pulling back. Currently sitting at 28 times forward revenue, which is well above the company’s historical range, the valuation argument has accelerated. As such, the market will want increased evidence that not only is the company successfully diversifying its revenue stream with other products, investors will also listen for how the company plans to outline its path towards profitability.
In the three months that ended July, the San Francisco, Calif.-based company is expected to earn 40 cents per share on revenue of $487.50 million. This compares to the year-ago quarter when earnings were 17 cents per share on revenue of $342.21 million. For the full year, ending January, earnings are expected to rise 85% to $1.67 per share, while full-year revenue of $2.05 billion would rise 41.2% year over year.
As strong as these quarterly projections appear for DocuSign, they still seem somewhat conservative, given that the company controls an estimated 70% of the e-signature market. The company has performed exceptionally well over the past few quarters. Because of this, expectations are high and the immediate concern is with the company’s tougher comparisons. And this comes in the face of increased competition from the likes of Adobe Sign (ADBE) and Dropbox (DBX).
Targeting $2+ billion in revenue during their fiscal 2022 year, DocuSign remains confident in its growth trajectory. In Q1, the company generated revenue of $469 million, which grew 58% year over year. Not only did that figure surpass the upper end of its own guidance, the growth rate accelerated two percentage points sequentially. Q1 subscription revenue was also impressive, rising 61% year over year to $452 million, compared to the 57% rise in Q4.
Just as impressively, Q1 Billings — a closely-watched metric — came in at $527.4 million, beating consensus of $464 million. And if DocuSign can duplicate these results on Thursday and outline its path towards sustained profitability, the stock may be poised to move higher.
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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