E-signature company DocuSign (DOCU) beat analyst expectations in Q1 FY2024 quarter, with revenue up 12.3% year on year to $661.4 million. Guidance for next quarter's revenue was $677 million at the midpoint, which is 1.33% above the analyst consensus. DocuSign made a GAAP profit of $539 thousand, improving on its loss of $27.4 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) Q1 FY2024 Highlights:
- Revenue: $661.4 million vs analyst estimates of $641.7 million (3.07% beat)
- EPS (non-GAAP): $0.72 vs analyst estimates of $0.56 (28.7% beat)
- Revenue guidance for Q2 2024 is $677 million at the midpoint, above analyst estimates of $668.1 million
- The company reconfirmed revenue guidance for the full year, at $2.72 billion at the midpoint
- Free cash flow of $214.6 million, up 89.9% from previous quarter
- Gross Margin (GAAP): 79.4%, up from 77.6% same quarter last year
"DocuSign's first quarter results, coupled with traction on our strategic objectives reflect a solid start to the year," 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 strong over the last two years, growing from quarterly revenue of $469.1 million in Q1 FY2022, to $661.4 million.
This quarter, DocuSign's quarterly revenue was once again up 12.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.81 million in Q1, compared to $14.1 million in Q4 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 8.81% year on year to $677 million, slowing down from the 21.6% 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 6.58% 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 79.4% in Q1.
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. 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. It is good to see that the gross margin is staying stable which indicates that DocuSign is doing a good job controlling costs and is not under pressure from competition to lower prices.
Key Takeaways from DocuSign's Q1 Results
With a market capitalization of $11.6 billion, more than $1.29 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
It was good to see DocuSign outperform Wall St’s revenue expectations this quarter. The billings beat of over 8% vs. Consensus was especially impressive, and free cash flow also beat by a healthy margin. And we were also glad that the revenue guidance for the next quarter and upcoming year exceeded analysts' expectations. Similarly, non-GAAP operating margin guidance for next quarter and the full year also came in ahead of expectations. Like other companies, DocuSign touted AI as a "competitive advantage". Overall, this quarter's results were positive and shareholders can feel optimistic. The company is up 9.59% on the results and currently trades at $64.13 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.