DocuSign Inc: More Than Just a Stay-at-Home Tech Stock

Time to Check Out DOCU Stock Again

Stay-at-home tech stocks were the hottest commodities for a substantial part of last year. These companies provide technologies that allow people to work, learn, and play from home, so their business has grown tremendously during the COVID-19 pandemic.

Unsurprisingly, when most of the economy was deep in the doldrums during lockdowns, stay-at-home companies’ growth made them stand out. And their share prices quickly appreciated.

For instance, DocuSign Inc (NASDAQ:DOCU), a company known for its “eSignature” solution, saw its share price go from $92.09 on April 1, 2020 to $268.8 on September 1, marking a 192% increase in just five months.

However, as the economy started to reopen, the momentum for stay-at-home tech stocks seemed to weaken. And the COVID-19 vaccine rollout drove investor attention further away from these names and toward the recovery plays in the market.

As a matter of fact, many of the stay-at-home stocks have been consolidating over the past few months—as opposed to continuing to go up with the rest of the stock market.

In the case of DocuSign stock, it has indeed been in a trading range since reaching a peak in early September.

DocuSign Inc (NASDAQ:DOCU) Stock Chart

Chart courtesy of StockCharts.com

But here’s the thing: even though DOCU stock may not be getting as much attention as before, DocuSign Inc still churns out some of the best growth figures in the market.

DocuSign Inc’s Business Performance

DocuSign’s eSignature solution allows different parties to securely sign agreements without having to be in the same room. As you’d expect, demand for this solution shot up when the pandemic started last year.

In the second quarter of DocuSign’s fiscal year 2021, which ended July 31, 2020, the company earned $342.2 million in total revenue, which represented a 45% increase year-over-year. (Source: “DocuSign Announces Second Quarter Fiscal 2021 Financial Results,” DocuSign Inc, September 3, 2020.)

With the gradual reopening of the economy, you might think DocuSign’s service isn’t required by as many customers as before. But that’s not the case at all. In the third quarter of DocuSign’s fiscal year 2021, which ended October 31, 2020, its revenue grew 53% year-over-year to $382.0 million. (Source: “DocuSign Announces Third Quarter Fiscal 2021 Financial Results,” DocuSign Inc, December 3, 2020.)

In other words, this stay-at-home company actually delivered higher revenue growth when lockdowns got lifted.

And the top-line number is not the only metric that has demonstrated the company’s strength.

Check out DocuSign Inc’s billings, for instance. Billings reflect sales to new customers plus subscription renewals and additional sales to existing customers. Billings can be an important measure of a software and services company’s periodic performance.

In the third fiscal quarter of 2021, DocuSign’s billings totaled $440.4 million, up 63% year-over-year. Again, this increase was actually stronger than in the second fiscal quarter, when the company achieved year-over-year billings growth of 61%.

And because DocuSign’s service is primarily subscription-based, it runs a recurring business.

In the third fiscal quarter, the company generated 96% of its total revenue from subscriptions, while the average contract length was 17 months. A large subscription business should provide good revenue visibility, which is certainly a great thing in the fast-changing tech world. (Source: “Q3 Fiscal Year 2021 Financial Review,” DocuSign Inc, last accessed March 3, 2021.)

Furthermore, while DocuSign is not as big a name as the more well-known tech giants, the company has built a strong presence in its operating market.

DocuSign has 822,000 paying customers, including many of the world’s largest banking, pharmaceutical, and technology companies. Hundreds of millions of people in over 180 countries around the world have used its eSignature solution to sign documents. (Source: “Transforming the Foundation of Doing Business: Winter 2020,” DocuSign Inc, last accessed March 3, 2021.)

Obviously, the concern right now is whether the growth momentum will slow down once the pandemic is over. But here’s the thing: while people will be able to have more face-to-face meetings in the future, DocuSign’s digital solution still offers convenience and faster turnaround times compared to the pen-and-paper manual process.

Besides, DocuSign Inc is well positioned for the work-from-anywhere future. At a virtual conference in January, the company’s chief financial officer, Cynthia Gaylor, said, “…people, once they move onto our platform and into kind of our product portfolio, they don’t tend to go back to pen and paper.” (Source: “DocuSign, Inc.’s (DOCU) Management Presents at 23rd Annual Needham Virtual Growth Conference (Transcript),” Seeking Alpha, January 11, 2021.)

She continued, “And so I am not sure DocuSign is so much of a kind of work-from-home. We are kind of more a work-from-anywhere and I think the DocuSign product and portfolio can really be used anywhere whether you are in an office or in a home environment or on the beach in Tahiti with your laptop.”

Analyst Take

DocuSign stock is not shooting through the roof at the moment, but DocuSign Inc’s business is booming.

If you believe that digital signatures will continue to take market share away from the paper-based process, then the best could be yet to come for DOCU stock.