After DocuSign, Inc. (DOCU) reported financial results last year December, investors dropped the stock due to the company's disappointing revenue projection. The company, which profited during the Covid-19 outbreak due to higher demand for electronic signatures, anticipates more typical purchasing patterns. Consequently, DOCU stock is now worth half of what it was in the previous quarter. The stock price of the pioneer of digital agreement services recently fell over 40% over time in response to a quarterly financial announcement that most corporate leaders could only dream about. The results obtained during the firm's Q3 of the fiscal year, which ended in October last year, were excellent in many aspects. Again, this did not deter investors focused on the stock's exorbitant value from pounding it down. The DocuSign stock price has, however, recovered from its lows, but it is still more than 50% below its all-time peak, set just four months ago. But why did DocuSign's shares plummet so precipitously? DocuSign generated revenue that exceeded estimates in the Q3 of its fiscal year. The market pummeled the stock as billings that had not yet been identified as earnings exceeded the company's own projection. In September, the business warned shareholders that Q3 billings would be in the $585 - $597M range. However, the corporation reported only $565M in revenue. Since there is a high level of competition in modern digital agreement services from bigger corporations like Adobe, that mistake had a huge impact on the DocuSign stock price. Regardless of the risk of opposition, DocuSign stock continues to trade at or above 70 times anticipated earnings estimates. Because of its high valuation and intense competition, this company is extremely vulnerable to any indications of a forthcoming recession. That being said, is the recent dip still an opportunity to purchase this stock at a low price, or is this a stock to avoid? Here's what you should know if you're considering a long-term investment in DocuSign stock.
DocuSign, Inc. is widely regarded as being one of the leading producers of digital signature software available in the market. The organization has over 1M paid subscribers across numerous sectors and runs in over 180 countries worldwide - a real global e-signatures service. DocuSign was founded in 2003 and debuted on the NASDAQ stock exchange in 2018. Since its IPO, DOCU stock has appreciated nearly 600% ever since its IPO and now has a market cap of about 26 billion. The corporation creates e-signature software, which enables legally enforceable transactions to be performed from different corners of the globe. Contracts frequently copy and paste sections containing legalese or other difficult-to-understand languages. DocuSign's analyzer uses artificial intelligence to minimize risk and accelerate the agreement process while guaranteeing no aberrant language is included. It also includes a contract lifecycle management (CLM) feature that generates contracts quickly and accurately. Contracts can sometimes be challenging and unpleasant for many businesses. DocuSign alleviates this weakness by reducing the duration employees spend evaluating contracts, allowing them to focus on their work.
The Impact of COVID-19 on the Corporation
DocuSign was among the businesses that global shareholders generally rushed to during the COVID-19 pandemic, owing to the belief that the global pandemic would generate upswings for its main business. Having several offices no longer open to the general public, corporations started to rely on digital ways to handle contracts and operations, especially in fields such as real estate, whereby clients and consumers could once again sign documents electronically. DocuSign expects a potential market of $50 billion throughout its service & product offerings, which shareholders should be aware of. Moreover, the company is more than just an e-signature business, and it has taken steps to broaden its product offering. DocuSign has expanded its offerings to include a CLM system and AI in its agreement analyzer- which allows clients to write better contracts quicker using the capabilities of advanced contract analytics. Having all of this technology, DocuSign is developing an effective business management model that is recognized and acknowledged by several major global corporations, notably Netflix and Visa.
Docusign Stock Price in the Past
Four years ago, DocuSign's initial public offering (IPO) was valued at $29 per share. The company was valued at $4 billion after raising $629 million. By September of last year, the DocuSign stock value had hit a peak of $310, representing a double profit for early investors. A good chunk of this achievement, as with most companies with such enormous profits, was due to luck. Since the COVID-19 pandemic began in early 2020, the NASDAQ Composite Index (COMP) dropped over 3,000 pts in 30 days. However, DocuSign was unaffected, soaring to $264 in February last year as worldwide mandated remote working raised the need for its digital contracts and e-signature services. Nevertheless, it has been unpredictable in the last two years. NASDAQ plummeted to $186 in May of last year before regaining its $310 peak. It has been dropping since, losing $50 since the third-quarter data were released. DocuSign stock value plummeted by more than 40% in December 2021, as shareholders fled the stock due to deteriorating growth prospects. It dropped from $232 to $137, wiping off much of its previous profits.
Docusign Stock Forecast
Based on the past two years of stock market performance, DocuSign Inc has traditionally gained by 151.8% within the next twelve months. DocuSign Inc has gained greater in two of those two years during the next one year, equal to a historical response rate of 100%. DOCU stock is currently trading at $130.440, and Gov.capital data shows that the stock value has been declining since its debut. According to Gov.capital, the stock's future price will be $437.540 (235.433%) after one year. This data suggests that if you invested $100 now, it might be worth 335.433$ within a year, implying that DocuSign stock is an excellent option for your portfolio. However, Wallinvestor believes that DocuSign stock is a poor long-term investment. The stock, according to Wallinvestor, can be a beneficial investment opportunity if you are seeking shares with a great profit. According to their projections, if the DocuSign stock quote is $130.440 today, long-term growth is projected with a stock value forecast of $163.561 by 2027. The revenue is estimated to be roughly +25.39% after a 5-year investment. In 2027, your initial $100 investment might be worth up to $125.39.
Why Buying the Stock Might Be a Smart Option
DocuSign's projections may have been optimistic, but that does not mean actual document delivery is poised to make a return. This year, the business anticipates roughly $2.1 billion in subscription fees, which only scratches the base of the market possibility for digital agreement services. DocuSign Agreement Cloud may earn over $50 billion in yearly sales by creating, signing, and administering contracts. The company's over 1 million clients aren't defecting to Adobe or any other potential businesses. In Q3, net dollar retention (NDR) was 121%, indicating that existing customers are extending and updating their subscriptions. DocuSign also transformed 17% of sales into net income, allowing it to create more capital for commercial ventures. Despite the fact that the company has grown by 88% and 113%, respectively, since the beginning of 2020, the market has ignored the fact that DocuSign is still a solid corporation. In the third quarter, international revenue increased by 68% but accounted for only 23% of total sales. The company is targeting eight nations as of the third quarter, leaving a big portion of the world untapped. DocuSign is continuously expanding and has a lot of room to grow globally. Here are some more reasons to buy the stock right now.
1. Long-Term Growth Possibility Remains
When it comes to attracting new clients and exploring newer markets, DocuSign still has a long way to go. Several analysts have already been dismissing the e-signature pioneer as a one-hit pandemic phenomenon; however, this appears to be short-sighted. A significant growth opportunity still exists outside the United States, where DocuSign produces less than a quarter of its sales. As DocuSign grows in the projected $50 billion global contract cloud industry, new improvements will provide the company with plenty of potentials to grow. As the world's premier e-signature company, it still has a plethora of unexplored areas in which to launch cost-effective document preparation, signing, and management services. DocuSign's underestimated growth catalyst is the creation of software suited to underserved end customers in the technology, finance, and industrial companies. DocuSign's highest growth days seem to be behind the company, but it is nevertheless capable of double-digit growth in the long term.
2. DocuSign’s CEO is Buying
Last month, DocuSign stock rose 11% to $154.45 after CEO Dan Springer revealed $4.8 million in stock purchases in a regulatory filing. DocuSign stock dropped 42% in the same month after the corporation announced that consumers have returned to more conventional purchasing patterns after six fast quarterly growth. In a Yahoo Finance interview, the CEO said that he planned to purchase the stock and that the stock value reaction would not be consistent with what he believes is a lot less dramatic change in the market productivity. This is a powerful, strong endorsement from a CEO whose back is apparently not in a perfect position or situation, a scenario few could have imagined given DocuSign's spectacular success. He has already seen his DocuSign investment reduced to $215 million, but he also has made no secret of his desire to purchase lower-cost shares. Nobody really knows the business better than Mr. Springer, so his endorsement here should give risk protection as DocuSign enters uncharted territory in 2022.
Things to Consider
DocuSign's expenditures are rising as it strives to invest in sales, marketing, and technical skills. In FY 2021, total operating expenditures of $1.3 billion grew 36.6% annually. The company has never announced and has no intention to raise dividend payouts on its equity securities. As a result, the only option to get profitability on DocuSign stock is for the share price to rise, which is not assured. The way the administration has handled growth prospects is alarming. While shareholders may be upset by DocuSign's failure to meet expectations, the company utilizes this guidance internally to drive the financial decision. If the corporation has overhired or purchased obsolete technology, the impacts will be felt in the coming years' quarterly results. According to The Motley Fool, comprehending DocuSign has gotten tough due to poor guidance. The upcoming quarter might provide tremendous growth and excellent guidance or bring another management warning. The only way to find out is to hold on to your investments and wait. DocuSign stock is also nearing profitability on an unadjusted basis (original cost to purchase an asset). Its diluted earnings under GAAP were $0.03 in Q3, while non-GAAP earnings were $0.58. When DocuSign routinely generates a return, it will calm many shareholders' anxieties, especially those who thought DocuSign would be just another sequentially losing corporation. Ultimately, DocuSign needs to address the issue of stock dilution. If DocuSign's liquidity rises by low quantities during the next year, it is an indication that the company is on the right track.
The Bottom Line: Is Docusign Stock a Solid Long Term Investment?
Despite management's troubling warnings, I still consider DocuSign stock a long-term investment. The stock sell-off ignores pandemic growth and the company's capacity to upsell. Furthermore, rather than declining, growth is returning to typical levels. However, as previously covered in this post, there are other things to consider. Sentiments are primarily driving shares of software corporations. This can lead to new opportunities, but it also represents a threat. Another thing to consider is that investors have previously been diluted, and equity remuneration implies that any further dilution will occur in the coming years. At last, there has certainly been some insider selling within the last year, however at considerably higher rates. Investors would be much more cautious if insider purchasing decided to continue at its current pace. As experts attempt to estimate DocuSign's future, there is a lot of room for volatility. If you're willing to ride out the highs and lows, then this might be an ideal opportunity to buy DocuSign stock at a bargain.
Written by Allen Lee
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