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About DocuSign

Over the past few years, I have used DocuSign a lot.

Whether it was an internship contract or a form to be filled out for an employer, DocuSign was all too there and, from my experience, served its purpose quite well.

What exactly is this company’s purpose, one might ask?

Well, it really is in the name, as DocuSign is a digital document platform through which one can generate, send, sign and retrieve documents that, you guessed it, needed to be signed, and there are evidently a plethora of use cases when it comes to the exponential digitization of the world and the pushing out of paper contracts and forms, as DocuSign has already bagged clients such as United Airlines, Primerica, T-Mobile, University Federal Credit Union (UFCU), Ducati, the University of Colorado at Boulder, Unilever, Camden Property Trust, along with many others.

Unsurprisingly, the company generates revenues through the sale of monthly and annual subscription packages to those who need their documents signed, such as the aforementioned companies and organizations, and this generally leads us to say that DocuSign can whether a recessionary storm, however, software overall has seen its fair share of sensitivities in the recent years with the gradual uptick in interest rates, as no company in this realm is completely immune to recessionary storm clouds by any means.

Regarding the product itself, it really has made digitally signing and retrieving documents much easier, obviously saving some trees in the process but also being certainly on trend with the acceleration of the business world and technology, instead of waiting for a document to be signed a week or so after sending it, now one can get all of the signatures obtained within a matter of seconds, making it incredibly simple for the recipient to simply generate their own signature once and effortlessly tap a few times where they need to sign for the rest of the signatures.

This is DocuSign’s niche and we love companies with a clear-cut, defined niche and product and customer focus.

It’s a great tool, however, one of the biggest initial worries and challenges we have with this company and the line(s) of business it’s in is the fact that there is little in the way of another determined technology company to make a smoother and better, less expensive software package offering essentially the exact same service(s).

One thing that instantly comes to mind is the world’s largest, unequivocal leader in illustration software, Adobe, but it should be mentioned that DocuSign already has a slew of other smaller, specialized competitors operating within the digital document signing ecosystem, and boy there really are a lot of them.

However, with a company such as Adobe, they already have some extensive capabilities within the document signing segment, which isn’t by any means the company’s primary business focus, certainly leaving room for a categorical leader such as DocuSign but we still view Adobe along with the other small competitors as threats to the company in question.

With that, could one hear the potential acquisition bells far off in the distance? We personally don’t think so, primarily because if a major SaaS company like Adobe really wanted to wet its beak deeper into the digital document signing space, we think it already has the in-house expertise and capabilities to do just that, and it doesn’t need to go out and spend billions upon billions of dollars to do that.

Well, it is definitely difficult to say at the moment, however, it would help if we knew just how attractive (or unattractive) DocuSign is as a company itself, which can be viewed through the lens of its main financials and other core metrics and figures, so, let’s go there.

DocuSign’s stock financials

At the time of this publication, California-based DocuSign is a $9.6 billion company with an associated share price of $46.40 along with no annually distributed dividend offered to its shareholders at the moment nor a readily available nor displayable price-to-earnings (P/E) ratio available to the public as well.

We will also briefly add that this company’s share price (NASDAQ: DOCU) most definitely had a COVID-19-fueled surge and a post-COVID plunge, reaching a peak share price of as high as just north of $300, perhaps presenting a sort of bargain basement opportunity for the time being.

We shall see, however, we will add that we aren’t at all curious as to why this company doesn’t pay out a consistent dividend given that at its core it is a technology company and therefore needs to retain as much cash as it possibly can so as to directly reinvest it back into its business(es) and perhaps new supplemental, revenue generating ventures as well.

Regarding DocuSign’s absence of a price-to-earnings ratio, it doesn’t initially appear as though the digital document platform is profitable quite yet, thus, it has no earnings to display, also somewhat verified by the company’s currently negative earnings per share (EPS) posture of -0.09.

With respect to the condition of the company’s balance sheet, DocuSign’s executives are in charge of ever so slightly north of $3 billion along with total liabilities in the amount of around $2.4 billion, making us feel good in that the company has remained total asset-heavy and the fact that it is also more than likely putting a good deal of debt financing to work so as to continue growing its business, which we also enjoy, so long as the company continues responsibly tending to said aggregate liabilities and outstanding debt(s), not to mention that we also think this balance sheet leaves enough room for the company to seriously consider buying out one or two of its smaller yet threatening competitors, so as to stay ahead of the digital document technology curve, as well as perhaps build out its artificial intelligence (AI) capabilities and features.

Moving right along to the company’s income statement, DocuSign’s total annual revenues since 2019 have been undoubtedly moving in the right direction, starting at a relative base of $701 million in 2019, rising the following year to $974 million, $1.4 billion (2021), just over $2.1 billion in 2022, leading up to its latest reported revenue figure of $2.5 billion, as reported in late January of 2023.

Customer acquisition and retention and/or some mild price hikes here and there or some combination thereof just might be doing the trick, however, usually when we find that a company’s annual revenues have been growing at a healthy rate, we don’t feel the need to say all that much, at least during time of normalcy, so as to not unintentionally inflate a company’s ability to generate sales in other periods of time (a great example of this would be net hand sanitizer sales during the public onset of COVID-19, as revenues for companies such as Purell and Cintas were probably shooting through the roof then likely softened due to the COVID-related trend).

Now the question really is how much cash has this category leader been losing on an annualized basis in order to obtain the aforementioned revenue figures.

With that, according to the company’s cash flow statement, DocuSign has been losing money year-over-year (YOY) on a net income basis, however, seemingly narrowing its losses in this respect from -426 million (2019) and its most recently reported figure of -$97 million (2023), which in itself is a good (Docu)sign, as the company seems to be inching closer and closer to a profitable state of being, not to mention the fact that during each and every one of these years DocuSign’s corresponding total cash from operations were well within the green, ranging between $76 million (2019) and a relative high of $507 million, as reported in 2023.

All in all, we enjoy seeing the company cut down its annualized net income losses and with the perspective of its associated annual revenues in mind, we think DocuSign can and will make profitability work within the next handful of years.

DocuSign’s stock fundamentals

According to the figures displayed on TD Ameritrade’s platform, DocuSign’s trailing twelve month (TTM) net profit margin sits at a position that we frankly did not assume it was going to be perched at, 1.90% to the industry’s respective average of -7.61%, giving us something to write home about as even this younger digital document software company has established itself both as a leader in terms of market share and position but also through the ever so critical venue of profitability, and given the trajectory of its revenues and its narrow niche, we don’t see much in the way of stifling the company’s profitability path moving forward, except, of course, as previously touched on, the competitive landscape, however, even then DocuSign can seemingly afford (primarily referencing the most recently reported condition of its balance sheet) to take some leaner and maybe even tech-saavyer competitors off of the market through acquisition(s).

Lastly, onto the company’s core TTM returns metrics, both as they particularly relate to assets and investment(s), also according to the figures displayed on TD Ameritrade’s platform, DocuSign lags a good deal behind the industry’s respective averages, with, for example, the company’s TTM return on investment pegged at 4.25% to the industry’s average of 17.35%, which, perhaps could be a byproduct of the intense amount of smaller competitors concentrating on and plotting on DocuSign’s downfall, as it tends to be easier for smaller companies to produce stronger TTM returns on these fronts given their less scaled operations, however, being that DocuSign is essentially the leader in the space, naturally meaning that it has plenty of other operations, expenses and returns to (hopefully) gain in the not-so-distant future, we presume it’ll take a little more time for DocuSign to flex its muscles in these arenas, which, as a younger, first mover within the broader overall technology sector, we can deal with, so long as, of course, some progress is made within the quarters and years to come.

Should you buy DocuSign stock?

Generally speaking, it isn’t so much that the company’s smaller competitors scare us, but more so the larger whales within the software as a service (SaaS) category that give us some general apprehension, as we don’t think a player such as Adobe would necessarily be all that interested in wholly acquiring DocuSign, but really more interested in continuing to impede on its document software market share.

And Adobe is a huge, huge, absolutely fierce competitor.

However, at the end of the day, all lines of business tend to be brutally competitive, especially as you get closer and closer towards the top, so we aren’t going to let this largely sway us in one direction or the other.

In sum, DocuSign’s is well off of its all-time highs, its balance sheet is in good condition, its revenues have been growing at a more than comforting rate, its total cash from operations have been positive on a recent year-over-year basis while its net income losses (during the exact same timeframe) have generally narrowed, its TTM net profit margin is in better condition than we had initially presumed while its core TTM return metrics have remained not as exciting for the reasons previously mentioned in paragraphs above.

All things considered, we feel it is best if we give the company’s stock (NASDAQ: DOCU) a “hold” rating, as we really do want to see this company become consistently positive on the net income side of things, particularly due to the other prevailing risk factors we see surrounding this company and its stock.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.