DocuSign Rallies Into Earnings (NASDAQ: DOCU)

Shares of electronic signatures and agreements handler DocuSign (NASDAQ: DOCU) have been on a major rally over the past two months. They’re up close to 130% since the middle of March and Wall Street can’t get enough of them right now. The San Francisco company IPO’d just over two years ago and bounced around for much of the first eighteen months but since reporting their fiscal Q4 earnings last March, investors have been sitting up, taking notice, and getting long.

As coronavirus gripped the world’s economies and sent equities tumbling, DocuSign reported 38% year on year growth in their revenue that smashed analyst expectations while also raising revenue outlook for the next quarter. They beat the consensus for EPS as well while billings popped 40% year on year too. With over 90% of the company’s revenue number coming from much-coveted subscription business, it’s not hard to see why eyebrows were raised as well as targets.

Rock Solid

FBN Securities were one of the first to come out with a reiteration of their Outperform rating while upping their price target to $90. Wedbush did the same, calling DocuSign a “rock-solid growth name” that was all the more attractive given the uncertainty present in equities. Needless to say, with shares currently trading at an all-time high of $150, these price targets were knocked out fairly quickly.

Their CEO, Dan Springer, said at the time "the fourth quarter wrapped up an exceptional year for DocuSign. Since introducing the DocuSign Agreement Cloud a year ago, we have dramatically broadened our offerings while maintaining strong growth from eSignature. With our latest move—the proposed acquisition of contracts AI pioneer Seal Software—we are continuing our drive to make organizations' end-to-end agreement processes faster, simpler, and smarter."

That acquisition of Seal Software was finalized at the start of May and boosts the company’s ability to maintain its large market share of the electronic signature space and to keep growing. Like many other SaaS companies whose products have remained or become core requirements in other companies (Microsoft, Zoom, Slack etc.), DocuSign’s business has remained largely immune from the coronavirus uncertainty that has plagued others. While they may lose smaller companies who are closing up shop entirely, the larger companies and customers who will survive the crash and impending recession will still need to send out contracts for an electronic signature day in and day out.

Wedbush analyst, Dan Ives, said in a note to investors at the end of last month that demand for DocuSign was remaining strong and largely unaffected by the pandemic as they’re very much a core work-from-home stock to own. He added, “while this macro is causing deal slippages across the board overall in the software landscape, we are seeing the DOCU solution set and e-signature platform being prioritized by IT decision-makers as it serves a clear key need for remote workers at home during this lockdown”.

Looking Ahead

And perhaps that is what makes DocuSign so attractive for investors. They have an undeniably strong product that will remain relatively steady if not continue growing, during uncertain times and that can grow aggressively during the good times when a rising tide raises all boats. At least, that’s what the 130% move in the share price over the past two months seems to suggest.

They are due to report their fiscal Q1 earnings after the close on Thursday and all eyes will be watching to see if the numbers from the past three months justify the new share price. Analysts are looking for about a 30% jump in revenue compared to the same quarter last year while EPS is expected to jump closer to 60% year on year. The main risk here is that they meet or even miss expectations and it becomes a “buy the rumor, sell the news” kind of event where profit taking takes the share price down.

But even if this happens, with a resilient business that’s motoring well, it won’t be long before investors are buying back in and getting onboard for the longer term.