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Shares of e-signature specialist DocuSign (DOCU) have gotten punished over the past twelve months, falling 80%, including losing more than 40% in the past six months.
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 company is scheduled to report third quarter fiscal 2022 earnings results after the closing bell Thursday. Investors want to know if now is a good time place a long-term bet on DocuSign’s recovery.
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. But with the pandemic being less of an issue, the company’s revenue continues to decelerate. Even then, there’s still a lot to like in the quarters and years ahead. But management must outline what that growth will look like. Dan Ives, analyst at Wedbush Securities, recently upgraded the stock, noting that the headwinds that have adversely affected the company have “played out” and downside from here is limited.
Although not a glowing endorsement given that the upgrade is from from Underperform to Neutral, the analyst sees signs of stabilization in the company. “We believe execution on the [contract lifecycle management] deal front have generally stabilized with numbers now attainable for [fiscal 2023 and fiscal 204,]” Ives wrote in a note to clients. Now down 69% year to date, compared to the 14% decline for the S&P 500 index, the stock is now at a very appealing valuation. But to reverse the negative downward trend, DocuSign must issue strong revenue growth forecast for next quarter and fiscal year.
In the three months that ended October, the San Francisco, Calif.-based company is expected to earn 42 cents per share on revenue of $626.88 million. This compares to the year-ago quarter when earnings were 58 cents per share on revenue of $545.46 million. For the full year, ending in January, earnings are expected to decline 16.6% to $1.65 per share, while full-year revenue of $2.49 billion would rise 18.2% 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 the new revenue streams are realized, the company must operate under lowered expectations amid the decelerating growth. In the most-recent quarter, DocuSign beat on both the top and bottom lines, while issuing strong guidance. The company reported adjusted EPS of 44 cents on revenue of $622.2 million which beat estimates of 42 cents on revenue of $602.3 million. Subscription revenue was notably strong, rising 23% year over year to $605.2 million, offsetting an 11% decline in Professional services and other revenue which came in at $17 million.
Just as impressive, the company’s Billings, a closely-watched metric, came in at $647.7 million, up 9% year over year. It wasn’t all good news, however. Q2 free cash flow was $105.5 million, compared to $161.7 million in the same period last year. The reaction to the stock was nonetheless positive, rising by 18%. To maintain that positive trend, 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.
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