All about DocuSign

DocuSign’s Q2 results have been quite impressive, exceeding expectations, with revenue increasing 11% and billings going up 10%. These indicate that the business is stabilizing and despite weaknesses, the firm has remained a leader in innovation, expanding into the contract lifecycle management space. Analysts have argued that in February, DocuSign’s (NASDAQ: DOCU) stock remained attractive despite its fall, and that the company’s expansion into the lifecycle of the agreement process through its CLM solutions provided a lot of potential. However, a few analysts have cautioned and said that patience was needed as the stock was down -30%.

Q2 2023 beats expectations but stock drops

After the release of the second-quarter 2023 report, DocuSign stock fell several times. Despite global challenges and uncertainty, the company recorded revenue of $687 million, beating estimates of $677 million and posting a 1.5% increase. Earnings per share also surpassed forecasts – 72 cents compared to the projected 66 cents. DocuSign also raised its full-year revenue expectations from $2.71-2.73 billion to $2.73-2.74 billion.

The figures are positive but market participants and analysts focused on disappointing numbers, such as the weakening net recurring revenues (NRR) and the drop in customer activity with annual contract values exceeding $300,000. The key issue is external macroeconomic factors and not the actual company successes.

This is one of the reasons that analytical firms have kept their target prices around the same level, despite positive earnings. While the consensus forecast for DocuSign stock now forecasts a 35% increase in the next 12 months, its shares are rated “Hold”.

With such controversial and confusing forecasts, traders and investors tend to conduct their own research and analysis in order to determine whether there is an attractive trading opportunity or not.

Company profile

Founded in 2003, DocuSign is an American company headquartered in San Francisco, specializing in helping companies and organizations manage electronic agreements. Through this eSignature solution, users can sign documents electronically on their devices. The product is tailored to accommodate specific regions, industries, and organizational sizes. Extra add-on features, such as SMS delivery, identity verification, notarization, and dynamic forms are also available.

Its Contract Lifecycle Management (CLM) solutions automate the workflows of the whole agreement process, before and after the signature. The firm has developed bespoke solutions across a range of industries including the mortgage industry, real estate, life science, and the Federal government.

Subscription model

DocuSign’s solutions are offered through subscriptions. The prices are based on the number of “Envelopes” and required functionality. An “Envelope” is a digital container that can send a single or several documents for signature or approval to one or several recipients.

Showing potential

In terms of revenue, billing growth, and guidance, the company has performed quite well ahead of its Q2 results. Billings rose 10% to $711.2 million. Revenue increased 11% to $687.7 million, exceeding consensus estimates by $10.3 million. Subscription revenue came in at $669.4 million, an 11% year-over-year increase. Professional services revenue rose 8% to $18.3 million, while international services saw a growth of 17%.

Its customer base increased 12% compared to a year ago, adding 37,000 customers in the quarter and reaching 1.44 million customers in total. Additionally, the number of customers with an annualized contracted value of $300,000 or more increased 6% to 1,047 customers. In the same quarter, dollar net retention dropped to 102% from 105% in Q1.

Gross margins came in at 78.8% compared to last year’s 78.0%. Subscription gross margins were slightly higher at 82.6% from 82.2% a year ago. Adjusted EPS came in at 72 cents versus 44 cents a year earlier, surpassing the 66-cent anticipated by markets.

The company’s operating cash flow was up to $211.0 million in Q2, while free cash flow came in at $183.6 million. Q2 saw DocuSign totaling $1.5 billion in cash and investments and increased its buyback program to $500 million, up $300 million.

Commenting on the Q2 earnings, CEO Allan Thygesen stated: “Our goal is to unlock the market for intelligent agreement management for millions of businesses, automating billions of hours of manual work and improving business outcomes. Today, we’re already monetizing AI directly through our CLM+ product and indirectly through its use in our products such as search. Our next step on that journey is with AI Labs.

With AI Labs, we are co-innovating with our customers. We provide a sandbox where customers can share a select subset of agreements, and try new features we’re testing. Our customers get early access to developing technology and we receive early feedback that we will incorporate into our products. By working with our customers in the development phase, we’re further reinforcing the trusted position we’ve earned over the last 20 years.”

Looking ahead, full-year revenue is anticipated to come in at 2.735-2.737 billion, while subscription revenue at $2.649-2.661 billion. That compares to a prior forecast of $2.713-2.725 billion in total revenue and $2.640-2.652 billion in subscription revenue. Billings are to come in at $2.804-2.824 compared to the prior outlook of $2.737-2.757 billion.

Q3 projections

For Q3, the company expects revenue to come in around $689-691 million, with subscription revenue forecast to come in at $669-673 million. This is a 7% growth in total revenue and 7.5% in subscription revenue.

DocuSign remains resilient and continues to innovate by expanding into the CLM space, where it concluded one of its biggest CLM deals to date in the quarter. It is also expanding into international markets, which make up over a quarter of its revenue. Analysts see the company continuing to grow, maybe not returning to pre-pandemic levels, but the 10% growth it has already delivered is commendable by many.

The stock is perhaps cheap and is seen by many analysts as a great opportunity. With the company delivering 3 consecutive quarters of 10% billings growth, business is on the up. Macroeconomic issues pose the biggest risk to DocuSign and could affect revenue and billings, especially if customers choose to turn to other competitors’ products.

While the firm focuses on higher-end differentiation, in its everyday commoditized uses, it may face some strong competition and lose some of its customers. DocuSign’s DOCU stock, as well as many other popular stocks, can be traded through CFDs with IronFX. Head over to our website to explore the exciting market of stock trading with CFDs and grasp some potential opportunities with superb trading conditions by a leading broker.

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