Company Reports

As the leader in electronic signatures and contract life cycle management software, we think DocuSign is well-positioned to capitalize on the evolving industry. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

After reconsidering DocuSign's rollercoaster performance during the lockdowns and in the postcovid hangover period, we are lowering our moat rating to none from narrow. We see the company’s business as moaty in general as a result of the proof point from covid and a high degree of recurring revenue, with the underlying moat source being switching costs. However, we are concerned that the company derives nearly all of its revenue from e-signatures and has been unable to gain more meaningful traction with some of its newer solutions, such as contract lifecycle management, thus far. We also see Adobe, the company’s main competitor, as making inroads with pricing and packaging, as well as usage drivers for both Acrobat and Adobe Sign, which could have an impact on DocuSign’s leadership position.

As the leader in electronic signatures and contract life cycle management software, we think DocuSign is well-positioned to capitalize on the evolving industry. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

As the leader in electronic signatures and contract life cycle management software, we think DocuSign is well-positioned to capitalize on the evolving industry. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

Narrow-moat DocuSign's fourth quarter was strong, with both revenue and non-GAAP operating margin exceeding our expectations. Management’s fiscal 2025 targets were higher than our initial estimates, as the firm expects an uptick in subscriptions thanks to a stabilizing environment, as well as margin expansion from recent restructuring efforts. We are encouraged by DocuSign’s focus on broadening its capabilities beyond its flagship eSignature offering, such as contract lifecycle management, WhatsApp integration, and international expansion, which we expect to be fundamental in driving growth. Given our increased near-term outlook and expectations for a modestly higher margin profile in the medium term, we raise our fair value estimate to $80 per share from $74. While we view shares as currently attractive for long-term investors, we continue to prefer some of our wide-moat names for their more consistent growth profiles.

Today it was widely reported that Bain Capital and Hellman & Friedman are competing to acquire narrow-moat DocuSign in an auction process. A sale underscores our belief that e-signature is a feature best contained in a broader platform. DocuSign’s contract lifecycle management could be that platform but that solution remains a small part of the company’s revenue, and investors may not have the patience to wait for a broader platform to reinvigorate growth, so there is rationale for selling the company.

Narrow-moat DocuSign reported strong fiscal 2024 third-quarter results, with the top line and non-GAAP operating margin exceeding our expectations. Profitability was similarly strong, as disciplined investments are bearing fruit. DocuSign’s operating environment remains difficult as budgets continue to face high scrutiny, with significant headwinds in the financials and real estate verticals. We are encouraged by DocuSign’s focus on broadening platform capabilities through initiatives beyond its flagship eSignature offering, such as contract lifecycle management and a new WhatsApp integration, as well as international expansion efforts. We are maintaining our $74 fair value estimate. The stock appears attractive for long-term investors, but we prefer some of the wide-moat names we cover as macro uncertainty persists.

Narrow-moat DocuSign reported solid second-quarter results, with both top-line and non-GAAP operating margin exceeding our expectations. Operating margin remains strong as a result of recent headcount reductions. Margins are expected to decline throughout the remainder of the year though, as DocuSign continues to innovate and invest in its products such as ID Verification and the expanded availability of DocuSign Monitor. Despite the macroeconomic headwinds, good results and a raised full-year outlook indicate that DocuSign is confident enough in its core business to invest in its products even in a difficult operating environment. DocuSign has executed well by focusing on margins, streamlining its sales approach, and accelerating product innovation. We keep our fair value estimate of $74. We see shares as attractive for patient investors, but continue to prefer some of our wide-moat names as macroeconomic uncertainty persists.

Narrow-moat DocuSign reported a good first quarter, with both top line and non-GAAP operating margin exceeding the high end of guidance. Operating margin benefited from recent headcount reductions, although guidance indicates margins will decline as the year progresses and investments ramp. Management said the environment is largely unchanged, with various pockets of strengths and weaknesses. Despite the macroeconomic headwinds, results and guidance indicate DocuSign has corrected course in terms of focusing on margins, streamlining the sales approach, and accelerating product innovation. Based on results and guidance, we fine-tuned our model and raised our fair value estimate to $74 per share, from $72. We see shares as attractive for patient investors, but continue to prefer some of our wide-moat names as macroeconomic uncertainty persists.

As the leader in electronic signatures and contract life cycle management software, we think DocuSign has a long runway for growth through viral adoption in greenfield opportunities. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

For the third consecutive quarter DocuSign reported good results, with fourth-quarter revenue and non-GAAP operating margin both exceeding the high end of guidance as well as our expectations. First-quarter guidance was constructive, albeit with better profitability compared with our expectations as a result of recent headcount reductions, and slightly lower revenue growth. DocuSign continues to see macroeconomic pressures resulting in deal compression and elongated sales cycles. In fact, management noted a slight deterioration in the demand environment. CFO Cynthia Gaylor is leaving, but will remain on board through next quarter’s earnings announcement. Her departure comes on the heels of a CEO transition just five months ago, which while not alarming, is certainly not a positive development. We tweaked our growth estimates down slightly and moved our profitability up slightly and are therefore maintaining our fair value estimate for narrow-moat DocuSign at $72 per share. With shares selling off in the aftermarket, we see upside to shares, but continue to prefer wide-moat stocks during this period of economic turmoil.

As the leader in electronic signatures and contract life cycle management software, we think DocuSign has a long runway for growth through viral adoption in greenfield opportunities. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

For the second consecutive quarter, DocuSign reported strong results, with third-quarter revenue and non-GAAP operating margin both exceeding the high end of guidance as well as our expectations. Fourth-quarter guidance was constructive, especially from a profitability perspective. The company saw continued signs of stress with deal compression and elongated sales cycles, strong early renewals helped with results. A restructuring plan announced in September helped with margins. The call also featured recently appointed CEO, Allan Thygesen, who talked mainly about opportunities to improve sales and operational issues as a first priority. The most important item in our view was management’s preview of next year, which called for high-single-digit revenue growth. We were looking for a bit more, hence we lowered our growth assumptions and therefore lowered our fair value estimate for narrow-moat DocuSign to $72, from $88 previously. While we see upside to the stock, we prefer some of our wide-moat companies during this period of economic turmoil.

As the leader in electronic signatures and contract life cycle management software, we think DocuSign has a long runway for growth through viral adoption in greenfield opportunities. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

DocuSign reported second-quarter results that exceeded the high end of guidance for revenue and were at the high end for non-GAAP operating margin. More importantly, the company increased its billings growth outlook for the year by about 100 basis points based on improvement in sales execution issues with bolstered leadership. Management maintained revenue and non-GAAP operating margin guidance for the year, is close to naming a new CEO, and repurchased $25 million worth of shares in the quarter. Based on these factors, we see light at the end of the tunnel, although we do not think the company is out of the woods yet. Macro conditions are deteriorating and DocuSign saw some lengthening deal cycles and smaller deals in real estate and financial services. Based on these factors, we are maintaining our fair value estimate of $88 per share, and see upside to shares, but advise investors to proceed with caution given recent missteps.

DocuSign announced Dan Springer is out as CEO of the company. He has been replaced by Chairman of the Board Maggie Wilderotter on an interim basis as the firm begins a search for a permanent CEO. Wilderotter has been on the board since March 2018 and previously served as the CEO of Frontier Communications from 2006 through 2015. While no time frame was provided, we would expect a new CEO to be named within approximately six months. Given her extensive leadership experience, we expect no issues with Wilderotter leading the company during this transitionary period.

As the leader in electronic signatures and contract life cycle management software, we think DocuSign has a long runway for growth through viral adoption in greenfield opportunities. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

DocuSign reported first-quarter results that exceeded the high end of guidance for revenue and were slightly above the midpoint for non-GAAP operating margin. That said, the firm is still experiencing sales execution issues and consequently lowered its billings outlook. Adding fuel to the fire, management also noted it was moderating its hiring, but did not raise its full-year profitability outlook. We interpret the billings outlook combined with the fact that existing customers have significantly slowed their expansion with DocuSign as signs that post-COVID-19 normalization is even more severe than we had previously modeled. Management admitted as much on the call. Based on these factors, we materially lower growth and profitability assumptions throughout our explicit 10-year DCF forecast, which in turn lowers our fair value estimate to $88 per share, from $130 previously. While we see upside from current levels to our fair value estimate, we have low confidence in management's ability to meaningfully accelerate revenue growth in the near term, we highlight our very high uncertainty rating, and recommend investors avoid the stock. In order to be convinced our estimate cuts are too severe, we would need to see evidence that sales changes are bearing fruit, contract lifecycle management, or CLM, express is driving a material sales funnel, and customers are returning to more regular consumption levels in a normalized post-COVID-19 world.

As the leader in electronic signatures and contract life cycle management software, we think DocuSign has a long runway for growth through viral adoption in greenfield opportunities. We also see existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform.

While DocuSign reported fourth-quarter results that exceeded the high end of guidance for revenue and hit the midpoint for non-GAAP operating margin, we are significantly reducing our value estimate to $130 per share, from $244 per share, based on fiscal 2023 guidance that was meaningfully short of our model, which was already below FactSet consensus. Guidance combined with sales execution issues have diminished our confidence in DocuSign's longer-term outlook. We are therefore lowering our annual growth forecast by approximately five points and our margin expectations by approximately one point in each year of our discrete 10-year forecast as we struggle to define DocuSign's normalized financial model post-COVID-19. We find further challenges in attempting to separate the impact that the North American sales organization mis-steps have had, and will continue to have, from the post-COVID-19 slowdown. While we see shares as attractive, we note that these factors underscore our very high uncertainty rating for the stock.