Shares of DocuSign (DOCU) have suffered double-digit losses over the past few weeks, falling more than 11% compared 3.4% rise in the S&P 500 index. Since reaching its 52-week high of $314 DocuSign has lost 23% of its value. But now could be a great opportunity to bet on a recovery.
The e-signature specialist is set to report third 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. 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. In the second quarter, the company reported its total customer base crossed above the 1 million level.
Year to date, DocuSign added about 160,000 new customers to its business, while its customer base rose almost 80% since the start of the pandemic. However, as vaccine distribution accelerates, the market has grown concerned about DocuSign’s ability to maintain its impressive growth, particularly as it relates to revenues, platform sign-ups and free cash flow. Nevertheless, to reverse the negative downward trend in the stock price, DocuSign will have to issue strong revenue growth forecast for next quarter and fiscal year 2022.
In the three months that ended October, the San Francisco, Calif.-based company is expected to earn 46 cents per share on revenue of $530.63 million. This compares to the year-ago quarter when earnings were 22 cents per share on revenue of $383.92 million. For the full year, ending January, earnings are expected to rise 87% to $1.70 per share, while full-year revenue of $2.09 billion would rise 43.6% 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).
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.
In the second quarter, the company generated revenue of $511.84 million, which grew 49% year over year. Not only did that figure surpass the upper end of the company's own guidance, the growth rate accelerated two percentage points sequentially. Adjusted EPS of 47 per share were seven cents ahead of estimates, while billings surged 47% year over year to $595.4 million, also topping consensus estimates. Just as impressive, Q2 subscription revenue rose 52% year over year to $492 million, while adjusted gross margin improved four percentage points year over year to 82%.
If DocuSign can duplicate these results on Thursday and outline its path towards sustained profitability, the stock may yet be cheap, especially amid renewed fears over omicron.
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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