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Earnings

Will Q2 earnings boost DocuSign’s share price?

DocuSign’s share price has certainly made its mark so far in 2020, surging 200.9% for the year to close at $223 on 31 August.

Furthermore, DocuSign’s [DOCU] share price was not unduly affected by the March sell-off and, despite falling to $68.68 on 12 March, it eventually rocketed as high as $227.68 on 4 August. This time last year, DocuSign’s share price was sitting at just $45.44.

The company allows businesses and individuals to sign agreements electronically, meaning Docusign’s share price has been boosted by the rush to digitalise during the pandemic, and keep businesses functioning as employees work remotely.

So, what’s the outlook for DocuSign’s share price when it releases its second-quarter earnings report on 3 September?

 

 

A sign of the times

Docusign’s share price enjoyed a healthy rally around its first quarter results, after the group reported a 39% year-over-year increase in revenues to $297m, with subscription revenues rising 39% to $280.9m.

This was helped by new product enhancements such as ID Evidence, which enables ID document information to be captured for those in regulated industries, and increased use of digital agreements such as court documents and hospital intake processes.

Figures from a Fortune Business Insights study suggest that the global e-signature market will reach $6.13bn by 2026, representing a compounded annual growth rate of 28.8%.

DocuSign’s share price also stands to gain long-term, with the firm shoring up its future prospects through acquisitions including data analytics firm Seal Software, which helps customers identify contract risks and opportunities, and Liveoak Technologies, which uses tools such as videoconferencing to seal agreements and verify identities online.

According to analysts at Zacks, the group is expected to report earnings per share of $0.07, up 600%, from the same quarter last year. It forecasts that revenues will reach $318.37m, up 35.13% from the same period a year ago.

For the full year, Zacks forecasts EPS of $0.46 per share and revenues of $1.32bn, representing a rise of 48.4% and 35% respectively.

$318.37m

DocuSign's forecasted Q2 revenue - a 35.13% rise

  

What do analysts think?

This is all good news for DocuSign’s share price.

Morgan Stanley recently lifted its price rating from $170 to $187, while Wells Fargo has set an equal weight rating and a $160 target. Oppenheimer has an outperform rating and a $200 target.

“DocuSign is building a business that will be vital to the success of companies working from home,” Will Ashworth wrote in InvestorPlace. “ Products such as eSignature make things easier for businesses to do business virtually. Any time you have a business that makes or saves people time and money, you’ve got a winning formula.”

“Products such as eSignature make things easier for businesses to do business virtually. Any time you have a business that makes or saves people time and money, you’ve got a winning formula” - Will Ashworth

 

Christine Williams, writing in The Motley Fool, adds that DocuSign’s share price is also benefitting from quicker growth in customers paying $300,000 or more in annual contract value.

She believes it also has plenty of room for international expansion, given that it only books 17% of its sales from outside the US at the moment.

“That suggests there could be plenty of upside left for this company,” Williams wrote.

However, she still has some concerns, namely the impact of the recession on small- and medium-sized business spending.

“If their finances get crunched, the smaller clients that constitute the majority of DocuSign’s customer base may not see the value in switching to digital processes, or they may decide that old-fashioned paper is just fine for the time being,” she says. “Increased competition from other newer upstarts entering the e-agreement market could also trip up its ambitions.”

She urges investors to stay focused on DocuSign’s GAAP profits — or the lack thereof as they plough money into sales, marketing and R&D. In the first quarter, its GAAP net loss per basic share was $0.26, compared to $0.27 last time.

“Increased competition from other newer upstarts entering the e-agreement market could also trip up its ambitions” - Christine Williams

 

“If and when its bottom-line tips into positive territory, this stock could become an attractive buy,” she states.

Other words of caution come from David Moadel, writing in InvestorPlace, who fears that, as society and work returns to normal, the work-from-home “hype” will fade. As such DocuSign’s share price could be inflated.

“Perhaps DocuSign stock has gotten ahead of itself,” he said.

It may be difficult to predict the outcome at the moment, but DocuSign is certainly one stock investors need to keep a close eye on.

According to Market Screener, the consensus amongst analysts is for the stock to outperform, with an average target price of $183.48. Hitting this would see a 17.7% downside on Docusign’s share price through 31 August’s close.

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