After results, an electronic-signature business is expected to lose more than a third of its value.
Last year, DocuSign Inc. became a hot pandemic stock play as the electronic-signature company benefited from increased adoption of digital contract tools, but the company is now on track to lose more than a third of its value in a single day after it suggested that the COVID-induced demand boom may be waning.
In Friday morning trade, shares of DocuSign DOCU, -42.22 percent were down 39 percent, on track to notch their worst single-day percentage fall on record. The dip follows DocuSign's recent earnings report, in which the business forecasted a poor billings outlook, citing a "return to more typical buying habits" following a period of "accelerated growth," according to Chief Executive Dan Springer.
After nearly doubling (up 200 percent) in 2020, the stock has already lost 36% year to date. For instance, the S& P 500 index SPX, -0.84 percent has risen 21% this year after rising 16% the previous year.
In a note lowering DocuSign's shares to hold from buy, Needham analyst Scott Berg noted that the company's report served as "a good reminder that even excellent firms take their figurative eye off the sales ball." While DocuSign declared that some aspects of their sales structure will be changed, Berg remarked that "solving these sales challenges frequently takes many quarters."
During the fiscal third quarter, DocuSign had "one of the largest SaaS [software-as-a-service] whiffs in recent memory, with overall billings growth of 28 percent, far below [the] 34 percent forecast," according to Citi Research analyst Tyler Radke. The midpoint of DocuSign's billings forecast for the fiscal fourth quarter was 22%, which was much lower than the 32% consensus number Radke stated in his letter to clients.
"We are surprised that DOCU is having substantial customer behavior/execution concerns showing up now, and in this magnitude," he said, "with a mostly robust performance versus [work-from-home] rivals over the past two quarters."
The research was a "thesis changer," but Radke maintained his buy recommendation on DocuSign, stating that the company has a "first-mover advantage" in its domain and that there is "little evidence" that customers are returning to handwritten agreements. He lowered his target price from $389 to $231.
While DocuSign faced challenging comparisons in its most recent quarter, Evercore ISI analyst Kirk Materne noted that the business "just misunderstood the market in terms of demand, which resulted in a greater than a projected drop in billings growth."
However, he said that the stock's steep decline shows that "the harm is virtually done as it relates to the quarter." Materne also feels that DocuSign's fiscal fourth-quarter billing projection "assumes no increase in demand generation vs. 3Q, which might prove cautious" after interacting with the company's management team.
"The fact is this stock just went from a narrative where investors were thinking about durable growth being in the 30%'s to being in the 20%'s, and that's going to produce a fairly big de-rate," Materne conceded.
"Until DOCU can prove that it can generate, not simply satisfy, demand on a regular basis, the multiple is capped," he writes, lowering his price objective to $200 from $320. Materne maintained an outperform recommendation on the company, highlighting the long-term potential of e-signature technology, particularly in industries such as government, where DocuSign is still "quite early in its adoption."
DocuSign's stock is down over 52% from its September closing high of $310.05.