How Fast Is DocuSign Growing?

The eSignature pioneer DocuSign, Inc. (NASDAQ:DOCU) is far from its highs. A tough macroeconomic backdrop has taken its toll on the stock.

DOCU share price had reached a high of more than $310 per share in September 2021 but it is more than 80% down from that high.

On the other hand, the company’s top-line growth has been quite sound but how fast is it actually growing?

How Fast Is DocuSign Growing?

Over the past 3 years, DocuSign revenues have grown by 45% in 2021, 19.4% in 2022, and 9.8% in 2023.

Those growth rates have translated to sales of $2.1 billion, $2.5 billion and $2.76 billion respectively.

The trend has clearly been stalling and it’s not entirely a surprise given that demand for the company’s offerings dramatically accelerated during the global pandemic but the slowdown began during the second half of the same year when buying patterns changed due to an increasingly challenging macroeconomic backdrop.

Now, management is attempting to re-accelerate top line growth and is anticipating a revenue range of between $2.91 to $2.92 billion in FY2025, which indicates growth of about 5.8% year-over-year at the midpoint.

Subscriptions have consistently made up more than 90% of the company’s total revenues. And this reliance has been increasing over the years. In FY2024, a $2.69 billion subscription revenue made up more than 97% of the total top line.

Margins & Profitability On Track

The company’s gross margin on a non-GAAP basis continues to rank very well, sitting at around 80% for the past five fiscal years, while its operating margin has been steadily increased to now sit at 26% in FY2024.

Better still, DocuSign finally turned profitable on a GAAP basis last year, posting $73.98 million of net income.

As is evident from its expanding operating margin, the company is trying to cut back on costs. Although profitable last year following significant losses in prior years, total operating expenses increased by only 4.3%.

Moreover, a restructuring plan was set to reconfigure and cut its current workforce by about 6%, with a majority of the positions in its Sales and Marketing organizations. 

Lastly, the company’s non-GAAP free cash flow doubled last year to reach $887.14 million, which indicates a solid liquidity position.

DocuSign Is Popular with Large Enterprises

In its more recent quarter, the company’s users count eclipsed 7 figures, with about 1.51 million paying customers.

DocuSign remains the preferred digital signature provider with all 25 financial and healthcare Fortune 500 companies featuring as customers. Moreover, the top 20 Fortune 500 tech companies are clients.

And this relationship with notable enterprises is only growing. In Q4 FY2024, DocuSign deepened relationships with several enterprises, including big names like SAP, Microsoft, and Deloitte.

Recently, DocuSign’s entire suite of products became available to Microsoft Azure customers on the Azure marketplace. The company has already recognized a $1 million customer from this particular channel.

While cutting costs is not sitting right with bolstering top line growth, it is helping profitability at the moment. Coming down from astronomical heights also posits a reasonable valuation.

For instance, its price is 18.2x forward non-GAAP earnings, which is not that cheap but compared to its five-year average of 151.85, this is quite a discount.

How High Can DocuSign Go?

While Wall Street analysts still see a 19.3% upside in DOCU, this might be the time to dip a toe in. Supporting the valuation thesis is the fact that a discounted cash flow forecast analysis pegs fair value at $$72 per share, suggesting as much as 35% upside opportunity.

It’s also worth noting that while the price-to-earnings multiple is high, when earnings growth forecasts of 64.7% annually over the next five years are factored in, the P/E seems relatively muted.

With high gross profit margins and profitability well on track, it’s hard to bet against DocuSign delivering for shareholders over the next 5 years. The share price down about 5% for the year and over the past twelve months too so a catalyst is needed to ignite it once again, but when it does, the fundamentals justify outperformance.

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