DocuSign (NASDAQ:DOCU) Beats Q3 Sales Targets, Stock Soars

Petr Huřťák /
2023/12/07 4:08 pm EST

E-signature company DocuSign (DOCU) reported results ahead of analysts' expectations in Q3 FY2024, with revenue up 8.5% year on year to $700.4 million. The company expects next quarter's revenue to be around $698 million, in line with analysts' estimates. It made a non-GAAP profit of $0.79 per share, improving from its profit of $0.57 per share in the same quarter last year.

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DocuSign (DOCU) Q3 FY2024 Highlights:

  • Revenue: $700.4 million vs analyst estimates of $690.1 million (1.5% beat)
  • Billings: $691.8 million vs analyst estimates of $674.6 million (2.5% beat)
  • EPS (non-GAAP): $0.79 vs analyst estimates of $0.63 (24.8% beat)
  • Revenue Guidance for Q4 2024 is $698 million at the midpoint, above analyst estimates of $693.7 million
  • Full year guidance raised across the board
  • Free Cash Flow of $240.3 million, up 30.9% from the previous quarter
  • Gross Margin (GAAP): 79.6%, in line with the same quarter last year

"DocuSign had a solid third quarter, delivering record non-GAAP operating margin and free cash flow," said Allan Thygesen, CEO of DocuSign.

Founded by Seattle-based entrepreneur Tom Gonser, DocuSign (NASDAQ:DOCU) is the pioneer of e-signature and offers software as a service that allows people and organisations to sign legally binding documents electronically.

Document Management

The catch phrase "digital transformation" originally referred to the digitization of documents within enterprises. The growth of digital documents has spurred an explosion of collaboration within and between businesses, which in turn is driving the demand for e-signature and content management platforms.

Sales Growth

As you can see below, DocuSign's revenue growth has been mediocre over the last two years, growing from $545.5 million in Q3 FY2022 to $700.4 million this quarter.

DocuSign Total Revenue

DocuSign's quarterly revenue was only up 8.5% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $12.73 million in Q3 compared to $26.3 million in Q2 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter, DocuSign is guiding for a 5.5% year-on-year revenue decline to $698 million, a further deceleration from the 13.6% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 5.6% over the next 12 months before the earnings results announcement.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. DocuSign's free cash flow came in at $240.3 million in Q3, up 566% year on year.

DocuSign Free Cash Flow

DocuSign has generated $751.5 million in free cash flow over the last 12 months, an eye-popping 27.6% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from DocuSign's Q3 Results

With a market capitalization of $9.62 billion, DocuSign is among smaller companies, but its $1.59 billion cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

It was encouraging to see DocuSign top analysts' billings and revenue expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Profits were also better-than-expected in the quarter, showing not only topline momentum but expense efficiency and leverage. For the full year, guidance was raised across the board. Zooming out, we think this was a decent quarter, showing that the company is staying on target. The stock is up 9% after reporting and currently trades at $51.7 per share.

So should you invest in DocuSign right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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