DocuSign Inc. emerged as a hot pandemic stock play last year as it benefited from the need for digital contract tools, but the company lost more than 40% of its valuation Friday after suggesting the pandemic-induced demand boom is waning.
Shares of DocuSign
DOCU,
fell 42.2% Friday, by far their steepest single-day percentage decline on record, wiping away roughly $19.4 billion worth of market capitalization. DocuSign issued earnings Thursday evening with a disappointing billings outlook, and Chief Executive Dan Springer called out a “return to more normalized buying patterns” following a stretch of “accelerated growth.”
The stock nearly tripled in 2020, pushing its market cap higher than $40 billion, but is now down 39.2% this year. In comparison, the S&P 500 index
SPX,
has rallied 21% this year after climbing 16% last year.
The company’s report served as “a good reminder that even outstanding companies take their proverbial eye off the sales ball,” Needham analyst Scott Berg wrote in a note downgrading DocuSign’s stock to hold from buy. While DocuSign announced that it would be changing some elements of its sales organization, Berg said he has found that “fixing these sales issues often requires several quarters.”
Citi Research analyst Tyler Radke wrote that DocuSign delivered “one of the biggest SaaS [software-as-a-service] whiffs in recent memory with total billings growth of 28% significantly below [the] 34% guide” during the fiscal third quarter. DocuSign’s billings outlook for the fiscal fourth quarter was 22% at the midpoint, which came in significantly below the 32% consensus figure Radke cited in his note to clients.
“With a largely resilient performance vs [work-from-home] peers over the last two quarters, we are surprised that DOCU is seeing significant customer behavior/execution issues cropping up now, and in this magnitude,” he continued.
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Radke called the report a “thesis shifter,” though he kept his buy rating on the stock, arguing that DocuSign has a “first-mover advantage” in its domain and that there are “few signs” that people are shifting back to manual agreements. He cut his target price to $231 from $389.
Evercore ISI analyst Kirk Materne wrote that while DocuSign faced difficult comparisons in its most recent quarter, the company “simply misread the market in terms of demand and that led to a faster than expected deceleration in billings growth.”
But the stock’s sharp move downward indicates that “the damage is essentially done as it relates to the quarter,” he wrote. Further, after speaking with DocuSign’s management team, Materne believes that DocuSign’s fiscal fourth-quarter billing outlook “assumes no improvement in demand [generation] vs. 3Q, which could prove conservative.”
While he called the stock’s selloff “a bit overdone,” Materne admitted that “the reality is this stock just went from a story where investors were thinking about durable growth being in the 30%’s to being in the 20%’s and that’s going to create a pretty material de-rate.”
He cut his price target to $200 from $320, writing that “until DOCU can show that it can generate, not just fulfill, demand on a regular basis, the multiple is capped.” Materne kept an outperform rating on the stock, citing the long-term potential of e-signature technology especially in markets like government where DocuSign is “very early” in its penetration.
DocuSign shares are off roughly 52% from their September closing high of $310.05.