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DocuSign (NASDAQ:DOCU) Q4: Beats On Revenue But Stock Drops 11.9% On Weak Guidance


Jabin Bastian /
2022/03/10 4:10 pm EST
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E-signature company DocuSign (DOCU) reported Q4 FY2022 results that beat analyst expectations, with revenue up 34.7% year on year to $580.8 million. However, guidance for the next quarter was less impressive, coming in at $581 million at the midpoint, being 1.98% below analyst estimates. DocuSign made a GAAP loss of $30.4 million, improving on its loss of $72.4 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) Q4 FY2022 Highlights:

  • Revenue: $580.8 million vs analyst estimates of $561.5 million (3.42% beat)
  • EPS (non-GAAP): $0.48 vs analyst estimates of $0.48 (small beat)
  • Revenue guidance for Q1 2023 is $581 million at the midpoint, below analyst estimates of $592.7 million
  • Management's revenue guidance for upcoming financial year 2023 is $2.47 billion at the midpoint, missing analyst estimates by 5.37% and predicting 17.5% growth (vs 46.1% in FY2022)
  • Free cash flow of $70.3 million, down 21.8% from previous quarter
  • Gross Margin (GAAP): 77.3%, up from 76.4% same quarter last year

"In fiscal 2022, we grew revenues by 45% and billings by 37% year-over year, while generating record operating and cash flow margins. While the year unfolded differently than expected, we are proud of the ongoing performance and resilience of our team as we scaled to become a multi-billion dollar company. Together, we helped another 280,000 new customers begin digitizing how they agree as we surpassed 1.17 million total customers overall, " 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 impressive over the last year, growing from quarterly revenue of $430.8 million, to $580.8 million.

DocuSign Total Revenue

And unsurprisingly, this was another great quarter for DocuSign with revenue up 34.7% year on year. On top of that, revenue increased $35.3 million quarter on quarter, a solid improvement on the $33.6 million increase in Q3 2022, and even a sign of slight acceleration of growth.

Guidance for the next quarter indicates DocuSign is expecting revenue to grow 23.8% year on year to $581 million, slowing down from the 57.9% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $2.47 billion at the midpoint, growing 17.5% compared to 46.1% increase in FY2022.

There are others doing even better than DocuSign. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. 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 77.3% in Q4.

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. Despite the recent drop, this is still 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 Q4 Results

Sporting a market capitalization of $19.4 billion, more than $802.8 million in cash and with positive free cash flow over the last twelve months, we're confident that DocuSign has the resources it needs to pursue a high growth business strategy.

It was good to see DocuSign deliver strong revenue growth this quarter. On the other hand, it was unfortunate to see that DocuSign's revenue guidance for the full year missed analyst's expectations and it indicates quite a significant slowdown in growth. Overall, it seems to us that this was a complicated quarter for DocuSign. The company is down 11.9% on the results and currently trades at $82.62 per share.

DocuSign may have had a tough quarter, but does that actually create an opportunity to invest 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.