Since hitting a low in early May, the DocuSign [DOCU] share price has been on an upward trend, rising 33.3% in the year-to-date to $296.24 on 31 August. As the company prepares to report its second quarter earnings on 2 September, can the
The DocuSign share price had gained close to 200% in 2020, driven by enterprises looking for remote working solutions during the COVID-19 crisis. However, the gains slowed down in early 2021, with the DocuSign share price suffering a drop to $180.16 at the close on 13 May as the easing of lockdowns around the world knocked investor sentiment in the future of remote working.
The stock has since recovered and is up 32.8% in the past 12 months (through 31 August). In comparison, peers Adobe [ADBE] and Dropbox [DBX] are up 29.7% and 47.52%, respectively, in the same period. While the stock has underperformed its peers, it has outpaced the S&P 500’s 28.8% rise.
DocuSign has a 2.87% weighting in the First Trust Dow Jones Internet Index Fund [FDN], whose shares have risen 26.23% over the last 12 months, and a 1.36% weighting in the iShares Russell Mid-Cap Growth ETF [IWP], which has risen 35%.
E-signature enhancements lift Q1 earnings
In the first quarter, DocuSign reported total revenues of $469.1m, up 58% year-over-year, and subscription revenues of $451.9m, up 61%. Its net loss came to $0.04, compared with a loss of $0.26 in the same period last year.
According to Zacks Equity Research, it produced earnings per share of $0.44 compared with expectations of $0.27. The performance was driven by new features such as eSignature for Microsoft Teams, improved data verification, virtual notarisation of contracts and eWitness enhancements.
By diversifying its Agreement Cloud platform, while also incorporating contract lifecycle management and document generation, it believes it has a total addressable market of $50bn.
It beat company expectations of total revenues of between $432m to $436m and subscriptions revenue of between $415m and $419m. Its shares flew from $194.75 at the close on 3 June, the day of the announcement, to $233.24 at the close on 4 June.
“We’ve increasingly become the way people agree in this emerging anywhere economy – and that's not only helping organisations continue operations during the pandemic but helping them realise new and more efficient ways of doing business in the future,” Dan Springer (pictured), DocuSign’s CEO, said in a company statement.
For the second quarter, DocuSign expects revenues to come in between $479m and $485m, with subscriptions revenue to be between $549m and $561m.
Zacks expects it to post quarterly earnings of $0.39 per share, representing a year-over-year change of 129.4%. Revenues are expected to be $482.48m, up 41% from the year-ago quarter.
The increase in revenues in the first quarter, especially in subscriptions, is likely to result in a share price bounce following the announcement. However, if the results fall short or are not significantly ahead of guidance, then the share price might head south.
Investors will also take heed of guidance for the third quarter and any drop in revenue expectations given strong comparisons with last year’s pandemic boom. This could again be a catalyst for a drop in the DocuSign share price.
According to Seeking Alpha, DocuSign is likely to hike its annual revenues on announcement day from between $2.027bn to $2.039bn, up 40% on the fiscal year 2021, to $2.1bn. But it remains cautious about the stock.
“The trends over the past year or so have been amplified by the global pandemic,” Seeking Alpha reports. “It’s reasonable to believe DOCU continues to grow 25%+ over the next few years, though with the stock already trading up over 50% in the past few months, investors may want to reconsider building a position heading into earnings.”
Analysts will be particularly keen to hear about new DocuSign services and products and how it is looking to further broaden its offering. Industry observers will also carefully analyse billings and subscriptions revenues to see if there is any weakness in enterprise spending and retention rates post lockdown.
In general, analysts are bullish. Royal Bank of Canada has an ‘outperform’ rating, while Citigroup has a ‘buy’ rating and a $288 target price. Morgan Stanley has a $295 price and an ‘overweight’ rating.