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DocuSign (NASDAQ:DOCU) Q1 Sales Beat Estimates But Stock Drops 15.7%


Radek Strnad /
2022/06/09 4:13 pm EDT
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E-signature company DocuSign (DOCU) beat analyst expectations in Q1 FY2023 quarter, with revenue up 25.4% year on year to $588.6 million. However, guidance for the next quarter was less impressive, coming in at $602 million at the midpoint, being 0.27% below analyst estimates. DocuSign made a GAAP loss of $27.3 million, down on its loss of $8.35 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 FY2023 Highlights:

  • Revenue: $588.6 million vs analyst estimates of $581.8 million (1.17% beat)
  • EPS (non-GAAP): $0.38 vs analyst expectations of $0.46 (17.6% miss)
  • Revenue guidance for Q2 2023 is $602 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $2.47 billion at the midpoint
  • Free cash flow of $174.5 million, up 148% from previous quarter
  • Gross Margin (GAAP): 77.5%, in line with same quarter last year

"We delivered solid first-quarter results, growing revenue by 25% year-over-year and adding nearly 67,000 new customers, bringing our total global customer base to 1.24 million. We also bolstered our leadership team with key new hires who, together with our existing team, are ensuring we're well-positioned to grow and scale our business," said Dan Springer, 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' orginally 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 year, growing from quarterly revenue of $469 million, to $588.6 million.

DocuSign Total Revenue

This quarter, DocuSign's quarterly revenue was once again up a very solid 25.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $7.86 million in Q1, compared to $35.3 million in Q4 2022. 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 17.6% year on year to $602 million, slowing down from the 49.5% 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 15.6% 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 77.5% in Q1.

DocuSign Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.77 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 $18 billion, more than $967.6 million 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.

DocuSign delivered solid revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from DocuSign. The company is down 15.7% on the results and currently trades at $73.57 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.

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