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DocuSign's (NASDAQ:DOCU) Q3 Sales Top Estimates But Stock Drops 20.4%


Kayode Omotosho /
2021/12/02 4:18 pm EST
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E-signature company DocuSign (DOCU) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 42.4% year on year to $545.4 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $560 million at the midpoint, or 2.41% below analyst estimates. DocuSign made a GAAP loss of $5.67 million, improving on its loss of $58.4 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) Q3 FY2022 Highlights:

  • Revenue: $545.4 million vs analyst estimates of $531.2 million (2.67% beat)
  • EPS (non-GAAP): $0.58 vs analyst estimates of $0.46 (25.3% beat)
  • Revenue guidance for Q4 2022 is $560 million at the midpoint, below analyst estimates of $573.8 million
  • Free cash flow of $90 million, down 44.3% from previous quarter
  • Gross Margin (GAAP): 78.7%, up from 74.4% same quarter last year

"Third quarter revenue growth of 42% year-over-year and operating margin of 22% exceeded our expectations. After six quarters of accelerated growth, we saw customers return to more normalized buying patterns, resulting in 28% year-over-year billings growth," 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 Covid pandemic has accelerated the digital transformation of how we work and do business and the e-signature products have been clear beneficiaries of it.

Sales Growth

As you can see below, DocuSign's revenue growth has been exceptional over the last year, growing from quarterly revenue of $382.9 million, to $545.4 million.

DocuSign Total Revenue

And unsurprisingly, this was another great quarter for DocuSign with revenue up 42.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $33.6 million in Q3, compared to $42.7 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 30.1% over the next twelve months, although estimates are likely to change post earnings.

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 400% since the IPO in 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 78.7% in Q3.

DocuSign Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 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

Sporting a market capitalization of $45.4 billion, more than $818.4 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.

DocuSign's revenue growth has been exceptional. And we were also excited to see the really strong revenue growth. 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 seemed decent but it looks like there is a slight slowdown on the horizon. Considering the high valuation investors might have been expecting more and the company is down 20.4% on the results and currently trades at $185.91 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.