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DocuSign shares collapse another 23% after Q1 results


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DocuSign launched its Initial Public Offering in April 2018 at $29 per share. By 3 September 2021, they struck a record $310, a tenfold return in just over three years.

nasdaqSource: Bloomberg
 
 Charles Archer | Financial Writer, London | Publication date: Friday 10 June 2022

DocuSign (NASDAQ: DOCU) shares were a prime beneficiary of both government-mandated remote working patterns and the ultra-loose monetary policy of the Federal Reserve.

But with both trends reversing towards the end of last year, CEO Dan Springer warned investors in December’s Q3 results that ‘after six quarters of accelerated growth, we saw customers return to more normalized buying patterns.’

Accordingly, DocuSign’s share price fell by 40% to $135 in a single day of trading, before inexorably sliding to $87 by yesterday morning.

Worse still, investors hopeful that Q1 results would come to the rescue have had those hopes dashed, as the Nasdaq 100 stock has collapsed another 23% to $67 in after-hours trading.

DocuSign share price: Q1 FY23 results

A cursory glance at first-quarter results of the ‘world’s #1 e-signature solution’ would suggest all is well at the NASDAQ-listed company.

Springer enthused that DocuSign stock had ‘delivered solid first-quarter results…adding nearly 67,000 new customers bringing our total global customer base to 1.24 million.’

Highlighting the refreshed leadership team and its billion-strong user base, the CEO argued ‘we're well-positioned to grow and scale our business… (with the) significant opportunity we have ahead of us, we're confident in our ability to successfully navigate the challenges of a dynamic global environment.’

The numbers appear to match the words. Total revenue increased by 25% year-over-year to $588.7 million, of which subscription revenue rose by 26% to $569.3 million, and professional services revenue rose 13% to $19.4 million.

This compares favourably to the Refinitiv average analyst revenue estimate of $581.7 million.

Meanwhile, GAAP gross margin was at a healthy 78% and billings were up 16% to $613.6 million. And encouragingly, net cash from operating activities rose to $196.3 million compared to the $135.6 million of Q1 FY22.

nasdaq 2Source: Bloomberg

Where next for DocuSign shares?

However, while this kind of revenue growth would normally be the envy of many NASDAQ-listed companies, the current fiscal environment is making losses ever more expensive.

Problematically, DocuSign lost $27.4 million in the quarter, more than treble the $8.3 million it lost in the same quarter last year. Accordingly, non-GAAP earnings-per-share was only 38 cents, 8 cents lower than worse than the Refinitiv average analyst estimate.

Moreover, while 25% revenue growth is healthy, it’s still far less explosive than the early days of the pandemic. And unfortunately for the DocuSign share price, its strong growth is being outweighed by negative sentiment over profitability.

However, DocuSign expects Q2 revenue to be between $600 million and $604 million, and full-year 2023 revenue to hit $2.47 billion to $2.48 billion, both within the consensus range. And finishing the quarter with over $1 billion in cash and equivalents, the NASDAQ stock has a significant financial cushion for the coming recession.

Springer accepted the need ‘to appropriately balance growth and profitability’ during the earnings call, confirming his intention to slow hiring in common with others in the hard-hit tech sector. He also noted the new challenges brought about by the slowing pace of growth, in addition to the complicating effect of the great resignation on the company’s sales team.

More widely, the CEO also noted the financial fallout of the Ukraine war is delaying deal-making, as CFO Cynthia Gaylor warned investors over the chilling effect of the broader macroeconomic environment.

However, in a sign of confidence, DocuSign has signed a ‘strategic partnership’ deal with Microsoft to help ‘joint customers further achieve 'anywhere' collaboration and builds on Microsoft's relationship as a DocuSign customer and partner.’

Springer enthused ‘Microsoft is critical to our vision of streamlining the agreement process for our customers… we are thrilled to be deepening our relationship with Microsoft to jointly deliver.’ For its part, Microsoft EVP & Chief Commercial Officer Judson Althoff declared ‘our collaboration with DocuSign enhances our ability to help our customers bring the agreement processes directly into the flow of work.’

But long-term, DocuSign’s share price trajectory will be determined by the culture war between an employer-backed return to offices, and employee reticence to give up remote-working practices.

Companies including Apple, Goldman Sachs and JP Morgan have clashed with employees over a full office return, while others such as Airbnb, Twitter, and Coinbase have allowed home working to continue indefinitely.

A new Work From Home Research study shows American commutes are still down 20% compared to pre-pandemic levels, with the average Statesider now working 1.5 days a week remotely. And in an extraordinarily tight labour market, the balance of power could be weighed against a feather.

With hybrid working the likely compromise, DocuSign shares could be a dip-buying opportunity as it works towards profitability.

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