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What to expect in DocuSign’s Q1 earnings?

DocuSign’s [DOCU] share price surged during the pandemic as it racked up new subscribers for its e- signature service.

At the start of 2020, DocuSign’s share price was trading hands at around the $74 mark. By the time the year ended it was worth just above $222, delivering investors a 194.2% return. Those gains continued until mid-February when DocuSign’s share price closed at $265.16 on 19 February. Since then, the stock’s been on a downward trend as investors switch out of growth stocks, closing Tuesday at $200.38.

However, as workers return to offices, the question is whether DocuSign will continue to see the growth needed to justify its toppy valuation - it trades at a forward 108.98 price to earnings multiple. Or if the current downward trend will continue into the second half of 2021. Upcoming first-quarter earnings should shed some light on DocuSign’s future.

 

When is DocuSign reporting?

3 June

 

What could move DocuSign’s share price post earrings?

Shareholders will be hoping DocuSign can continue last quarter’s growth story. In the fourth quarter, total revenue came in at $430.9m, up 57% year-on-year. The bulk of that was subscription revenue, which surged 59% year-on-year. Total revenue for fiscal year 2021 came in at $1.5bn, up 49% year-on-year, with subscription revenue making up $1.4bn of sales. Any sign that subscriber numbers are growing could see a bounce in DocuSign’s share price post-earnings.

$430.9m

DocuSign's Q4 revenue - a 57% YoY rise

  

In May, DocuSign hired former Cisco chief data officer Shanthi Iyer as its new Chief Information Officer (CIO). Iyer spent 20 years at Cisco in a variety of leadership positions and is being brought on board to help ‘spearhead’ DocuSign’s plans to rapidly scale.

Scaling up DocuSign will involve expanding beyond DocuSign eSignature to encompass the entire agreement process, according to a March investors presentation. To accomplish this, the DocuSign Agreement Cloud will also include a contract management platform, insights and analytic tools, and a remote notary service. According to the presentation, this would bring DocuSign’s total addressable market to $50bn. An update on these plans could help justify that seemingly pricey valuation.

 

What to expect in DocuSign’s earnings?

DocuSign handily beat Wall Street expectations in the fourth quarter, delivering earnings of $0.37 a share against an expected $0.22. For the upcoming earnings, analysts are forecasting earnings of $0.28 a share, a hefty increase on the $0.12 delivered in the same quarter last year. Revenue is pegged at $437.81m.

$437.81m

DocuSign's forecasted Q1 revenue

  

Where next for DocuSign?

Daiwa Capital analyst Stephen Bersey is bullish on DocuSign’s prospects, despite its seemingly lofty valuation. The analyst notes that, as a ‘trailblazer’ in the electronic signature market, DocuSign has a headstart over the competition. While acknowledging the lofty valuation, Bersey believes the ‘company will grow revenue well above the industry for some time,’ and considers the stock a “core growth technology holding.”

“With Covid-19 highlighting the importance of companies being able to seamlessly conduct and sign business remotely, we believe that DocuSign will see a near-term benefit from remote-work and see heightened demand for e-signature, contract management, and audit management related products,” wrote Bersey in a commentary

“With Covid-19 highlighting the importance of companies being able to seamlessly conduct and sign business remotely, we believe that DocuSign will see a near-term benefit from remote-work and see heightened demand for e-signature, contract management, and audit management related products” - Daiwa Capital analyst Stephen Bersey

 

Among the analysts tracking DocuSign’s share price on Yahoo Finance, the stock carries a $273.06 price target, a 36.5% upside on Tuesday’s closing price. Back in March, Evercore ISI Group upgraded its rating on DocuSign from In-line to Outperform, pinning a $285 price target on the stock.

The pandemic has also meant companies accelerating the shift to cloud computing and workplace productivity tools. For many, this is a cost-cutting measure, which makes good business sense. It’s not outlandish that as the world returns to normal, companies will want to retain some cost-cutting measures - especially if they have been done for productivity. In this case, DocuSign’s share price could justify its hefty valuation.

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