Cloud-based electronic-signatures company Docusign (NASDAQ:DOCU) encapsulates the current business landscape. A shift towards remote collaboration precipitated by the novel coronavirus has, without a doubt, benefited Docusign stock holders this year.
Like it or not, we’re living in a time when people would often prefer not to work in close physical proximity to each other. Docusign’s success in 2020 stems largely from the company’s ability to help business and people to process documents electronically, thereby reducing the need for face-to-face communication.
Earlier this month, Docusign reported its earnings data for the second quarter. By the time this event took place, expectations had run at a fever pitch. This created a high hurdle for Docusign to clear.
Sometimes, a profitable company can have a perfectly good quarter yet the market reacts irrationally. That’s when patient investors can swoop in and take advantage of the mismatch between perception and reality. Is there such an opportunity with Docusign stock now?
A Closer Look at Docusign Stock
If you’ve been waiting for Docusign stock to dip, the market has finally given you a gift. And, there’s an old saying that you shouldn’t look a gift horse in the mouth.
In other words, it’s probably best not to over-analyze the price dip in Docusign stock. After all, the long-term uptrend is still fully intact. We’re talking about a stock that was just $70 per share in mid-March.
Skeptics might contend that reaching the 52-week high of $290.23 was too far, too fast for Docusign stock. That might indeed be the case. By that logic, though, a retracement to the $200 area is a healthy correction.
On the other hand, if Docusign stock breaks down below $150, that’s a different story entirely. By that point, the bears will have taken control of the price action. For the time being, however, it’s still a bull market for Docusign.
Just Scratching the Surface
After releasing his company’s second-quarter fiscal results, DocuSign CEO Dan Springer commented, “We are just scratching the surface of our Agreement Cloud opportunity and believe we are increasingly becoming an essential cloud-software platform for organizations of all sizes.”
You’d be hard-pressed to argue that Springer’s wrong about this. The quarterly stats strongly suggest that Docusign remains as essential as ever:
- $342.2 million in revenues, a 45% year-over-year increase; this beat Wall Street’s projection of $318.6 million as well as the company’s own estimate of $316 million to $320 million
- 17 cents per share in non-GAAP profits, easily beating Wall Street’s consensus of 8 cents per share
- Subscription revenues of $323.6 million, up 47% year-over-year
- Billings of $405.7 million, indicating a year-over-year improvement of 61%
- Full-year guidance of revenues ranging from $1.384 billion to $1.388 billion
- Third-quarter revenue guidance of $358 million to $362 million
With revenue growth of this magnitude, you’d think this earnings report would be met with a celebratory bidding war from the trading community, right?
Not Great Enough
As we now know in hindsight, that’s not how it panned out for Docusign stock holders. Oddly, the share price tanked post-earnings.
That’s problematic for anyone who bought Docusign stock near its 52-week high. However, prospective investors should relish the opportunity to own Docusign shares at a lower price point.
So, why the share dumpage? I would chalk it up to unrealistically high expectations among some traders. Sometimes, it seems, doing great isn’t good enough anymore.
Traders were probably also reacting to Springer’s concession that “Customers have pulled projects forward,” along with the company placing its billings growth projection for the second half of Docusign’s fiscal year in the 40% area.
That’s a conservative estimate, but it’s not a valid reason to dump one’s Docusign shares. This could be an instance of the market punishing a company for providing a well-considered outlook. It might also be a setup for a positive surprise later on.
The Bottom Line
As far as I’m concerned, Docusign knocked it out of the park in the second quarter. The remote-work renaissance is still in full effect and isn’t likely to slow down anytime soon.
And if the market handed you a buy-able dip in Docusign stock, this isn’t the time to look a gift horse in the mouth.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
