DocuSign Earnings: Innovates and Expands Despite Macroenvironment

Key Morningstar Metrics for DocuSign

• Fair Value Estimate: $74.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of DocuSign’s Earnings

Narrow-moat DocuSign DOCU 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.

DocuSign Stock Undervalued

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.

Total revenue grew 11% year over year to $688 million, exceeding the high end of guidance at $679 million. Subscription revenue grew 11% year over year to $669 million, while services grew 8%. Within the international segment, expansion remains the primary goal, and DocuSign has demonstrated the ability to execute, as it grew 17% year over year, representing 26% of total revenue. Billings were $711 million, up 10% year over year, based on a higher rate of time renewals.

Net dollar retention declined sequentially, consistent with recent trends, to 102%, and management expects that figure to trend further down in the third quarter. As a reminder, DocuSign’s normal range is 112% to 119%, but the downtick was not unexpected as buying patterns are more modest, expansion remains constrained, and slight churn occurs amid the difficult macroenvironment.

Non-GAAP operating margin was 24.7%, up significantly from 18.0% a year ago, and was driven by recent headcount reductions when compared with the previous year.