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DocuSign (NASDAQ:DOCU) Posts Better-Than-Expected Sales In Q3, Stock Jumps 15.2%


Kayode Omotosho /
2022/12/08 4:12 pm EST
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E-signature company DocuSign (DOCU) reported results ahead of analyst expectations in the Q3 FY2023 quarter, with revenue up 18.3% year on year to $645.4 million. The company expects that next quarter's revenue would be around $639 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. DocuSign made a GAAP loss of $29.8 million, down on its loss of $5.67 million, in the same quarter last year.

Is now the time to buy DocuSign? Access our full analysis of the earnings results here, it's free.

DocuSign (DOCU) Q3 FY2023 Highlights:

  • Revenue: $645.4 million vs analyst estimates of $627.2 million (2.9% beat)
  • EPS (non-GAAP): $0.57 vs analyst estimates of $0.42 (34.1% beat)
  • Revenue guidance for Q4 2023 is $639 million at the midpoint, below analyst estimates of $641.6 million
  • Free cash flow of $36 million, down 65.8% from previous quarter
  • Gross Margin (GAAP): 79.9%, up from 79% same quarter last year

"We delivered solid third quarter results, and are pleased with the continued progress against our critical priorities," 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.

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 very strong over the last two years, growing from quarterly revenue of $382.9 million in Q3 FY2021, to $645.4 million.

DocuSign Total Revenue

This quarter, DocuSign's quarterly revenue was once again up 18.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $23.2 million in Q3, compared to $33.4 million in Q2 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates DocuSign is expecting revenue to grow 10% year on year to $639 million, slowing down from the 34.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 9.26% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. DocuSign's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 79.9% in Q3.

DocuSign Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.79 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a good gross margin that allows companies like DocuSign to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from DocuSign's Q3 Results

With a market capitalization of $8.44 billion DocuSign is among smaller companies, but its more than $975.3 million in cash and positive free cash flow over the last twelve months give us confidence that DocuSign has the resources it needs to pursue a high growth business strategy.

It was good to see DocuSign improve their gross margin this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, revenue guidance for the next quarter slightly missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 15.2% on the results and currently trades at $50.34 per share.

Should you invest in DocuSign right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.