DocuSign (DOCU) shares dive 40% as earnings slow
15:18, 3 December 2021
DocuSign shares are down around 40% after being eviscerated overnight following released of third quarter earnings that missed on a key earnings metric.
The stock opened at $154.80 per share, half the price recorded on 10 August, when the e-signature company reached a 52-week high. Shares continued to fall after the open.
The San Francisco-based company reported earnings for the third quarter ended October 31 after markets closed on Thursday and investors largely focused on the billings metric, which reflects sales to new customers plus subscription renewals and additional sales to existing customers.
Focus on billings
Billings increased 28% year over year to $565.2m but came in lower than earlier company estimates of $585m–$597m, signalling a change in customer buying behaviour, Wedbush analyst Daniel Ives said in a report provided to Capital.com.
DocuSign also lowered full fiscal year billings to $2.33bn–$2.34bn from earlier estimates of $2.40bn–$2.42bn.
“Instead of billings handily beating (Wall Street estimates), the company missed on this key metric as it appears management was caught blindsided by the quickly changing sales environment which is a worrying trend for the Street,” Ives wrote.
What is your sentiment on DOCU?
On paper, DocuSign's earnings appeared positive, but digging deeper investors see worrying signs.
Revenue increased by $162.5m year over year to $545.5m on the quarter, which was above the company’s previous expectations of $526m–$532m. Revenue also beat analysts’ estimates of $531m, according to Refinitiv data.
Likewise adjusted earnings came in at 58 cents per share versus analyst estimates of 46 cents. EPS for Q3 2020 was 22 cents per share.
Despite the large year-over-year increase in revenue, the latest number does mark a decline in the exceptional growth the company has generated during the pandemic.
Revenue increased by 42% year over year in the most recent quarter, which is down from a 53% increase during the comparable quarter last year, according to a company presentation. Subscription revenue similarly increased by 44% compared with a 54% increase during the same period last year.
With growth slowing, Wedbush lowered its rating of DocuSign to “neutral” from “outperform” and lowered its 12-month price target to $200 per share from $340.
“While DOCU was a clear benefit from the work from home theme and was one of our favourite growth plays over the past few years, we believe the company is seeing a much more difficult selling environment as the company expands into broader CLM deals with e-signature going through a major growth transition in the field," Ives said.
“DOCU remains in firm position to massively expand this moat into broader strategic deals, however it appears this transition will be rocky and the risk/reward at current levels is not favourable to stay bullish with the clock hitting midnight on the DOCU hypergrowth story in our view.”