DocuSign (NASDAQ:DOCU), which operates an e-signature platform, is one of this year’s hottest IPOs, up over 100%. However, it looks like investors may have been overeager. On news of the latest earnings report, DocuSign stock is off 7% in early trading.
Now the company did beat expectations and raised the outlook. For the second quarter, revenues jumped by 33% to $167 million and adjusted earnings came to 3 cents a share. As for the Street, the forecast was for revenues of $158.7 and earnings of 1 cent a share.
A Closer Look at DocuSign Stock
Regarding the outlook, the company raised its forecast on revenues to $683 million to $688 million, up from $652 million to $658 million (on a full-year basis). There was also a boost for bookings. DocuSign expects a range of $732 million to $752 million, compared to $680 million to $700 million.
In light of all this momentum, it should be no surprise that the company has been quickly amassing a large customer base, which is nearly 430,000 (in the quarter, there were 25,000 new customers). The company has also been expanding quickly in international markets – coming to about 17% of overall sales.
But despite all this, the results were still not enough to satisfy Wall Street. Then again, the valuation on DocuSign stock is far from cheap. Consider that the forward price-to-sales multiple is a hefty 18X. So at these levels, it is certainly tough to keep investors happy.
During the quarter, DocuSign had some other announcements:
- The company agreed to shell out $220 million for SpringCM, which is a top cloud provider for document generation and contract lifecycle management. It seems like a perfect fit and should lead to more revenue opportunities. SpringCM has customers like ADP (NYSE:ADP), Facebook (NASDAQ:FB), Spotify (NYSE:SPOT) and Aetna (NYSE:AET).
- DocuSign added three new members to its board of directors and five existing ones will depart over the next year. The additions include Blake Irving, the former CEO of GoDaddy (NYSE:GDDY); Steve Singh, who is the CEO of Docker; and Inhi Cho Suh, who is the unit GM at IBM’s (NYSE:IBM) Watson. They will certainly be helpful in key areas like cloud computing, Artificial Intelligence and blockchain.
Bottom Line on DocuSign Stock
Agreements are at the heart of the business world. Yet they are often cumbersome because of the manual processes. The result is that a contract can drag on and on.
So yes, DocuSign’s e-signature platform is a big improvement. Just some of the benefits include: access on any devices, searchability, editing, collaboration and security.
But developing all this is not easy. This is why DocuSign has been committed to pushing innovation. Since its founding in 2003, the company has poured more than $300 million into its R&D efforts.
What’s more, there is another key benefit for e-signature technology: It’s viral. As you send a contract to someone else, he or she needs to sign up. Because of this, DocuSign has built a base of over 200 million users. This is certainly a major barrier to entry as the company has become the top-of-mind solution for e-signatures.
And finally, while the valuation on DocuSign stock is on the high-side, a premium is definitely deserved because of the growth and defensibility of the business. Besides, the opportunity is still in the early stages. According to DocuSign’s estimates, the addressable market is a whopping $25 billion. In other words, there is still much more runway for DocuSign stock.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.