Down 83% From Record Highs, Is DocuSign Stock a Buy Right Now?
DocuSign (NASDAQ: DOCU) is a
company that thrived amid the pandemic. As lockdowns were imposed
and businesses were shut, demand for DocuSign’s suite of services
gained pace, allowing it to increase sales from $973.9 million in
fiscal 2020 to $1.45 billion in fiscal 2021 and $2.1 billion in
But analysts now forecast
DocuSign’s revenue growth to decelerate to 17.7% in fiscal 2023 and
to 10.7% in fiscal 2024. A less than impressive growth rate,
coupled with a challenging macro environment, has driven
DocuSign stock lower
by 83% from all-time highs, valuing
it at a market cap of $10.8 billion.
So, is DocuSign stock a buy now,
or will its price move lower in the next year?
An overview of DocuSign’s recent results
Founded in 2003, DocuSign
accounts for 70% of the e-signature market. It ended fiscal Q2 with
1.28 million customers, an increase of 22% year-over-year. The
company also provides contract lifecycle management services for
human resource departments. These services are bundled together in
DocuSign Agreement Cloud,
which is subscription-based.
DocuSign announced its fiscal Q2
of 2023 (ended in July) results earlier this month and reported
revenue of $622.2 million, an increase of 22% year-over-year. The
company beat analyst estimates by $19.9 million as its billings
surged 9% to $647.7 million.
DocuSign’s net income fell 8% to
$90.1 million or $0.44 per share, but beat estimates that forecast
the bottom line at $0.42 per share.
For the third quarter, DocuSign
forecasts revenue between 14% and 15% year over year, and billings
are estimated to increase between 3% and 5%. In fiscal 2023, sales
are expected to increase by 18%, with billings growth forecast at
While these estimates were in
line with analyst projections, it will also be the slowest top-line
growth rate for DocuSign as a publicly listed company.
DocuSign stock might remain volatile
Investors expected DocuSign’s
revenue growth rate to stabilize once the dreaded pandemic is
brought under control. But the company now has to wrestle with
macroeconomic challenges such as inflation, interest rate hikes,
and geopolitical tensions.
During its Q2 earnings call, CEO
Maggie Wilderotter stated DocuSign continues to experience softness
in certain verticals such as real estate and financial services.
These factors also lowered its net dollar retention rate to 110% in
Q2 from 114% in Q1 and 124% in the year-ago
Historically, net dollar
retention rates have ranged between 112% and 119%, but DocuSign
expects it to stay lower in Q3 as well. This indicates existing
customers have lowered spending on the DocuSign platform in the
Amid a volatile period, DocuSign
will need to improve its profit margins in the future. Analysts
expect adjusted net income to fall by 16.7% to $1.65 per share in
fiscal 2023. But its forecast to rise by 20% annually in the next
five years. It indicates DocuSign enjoys certain pricing power in
the e-signature services market, despite facing competition
from Adobe’s (NASDAQ: ADBE) Sign
and Dropbox’s (NASDAQ: DBX) HelloSign.
Alternatively, the company is
still reporting a net loss on a GAAP basis. In the first six months
of fiscal 2023, DocuSign’s net losses more than doubled to $72.5
million, compared to $34 million in the year-ago period. Its
stock-based compensation surged 39% to more than $252 million,
accounting for a fifth of total sales.
Is DocuSign stock a buy?
DocuSign stock is valued at 4.4x
forward sales and 33x forward earnings, which is quite steep. Right
now, there are better cloud-based stocks trading at similar
valuations. But analysts remain bullish on DOCU stock and expect
shares to rise by more than 50% in the next year.
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