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DocuSign (NASDAQ:DOCU) Q2: Strong Sales, Upgrades Full Year Guidance


Full Report / September 02, 2021
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E-signature company DocuSign (DOCU) reported Q2 FY2022 results beating Wall St's expectations, with revenue up 49.5% year on year to $511.8 million. DocuSign made a GAAP loss of $25.5 million, improving on its loss of $64.5 million, in the same quarter last year.

DocuSign (DOCU) Q2 FY2022 Highlights:

  • Revenue: $511.8 million vs analyst estimates of $487.9 million (4.88% beat)
  • EPS (non-GAAP): $0.47 vs analyst estimates of $0.40 (18.6% beat)
  • Revenue guidance for Q3 2022 is $529 million at the midpoint, above analyst estimates of $520.9 million
  • The company lifted revenue guidance for the full year, from $2.03 billion to $2.08 billion at the midpoint, a 2.45% increase
  • Free cash flow of $161.7 million, up 31.4% from previous quarter
  • Gross Margin (GAAP): 77.7%, in line with previous quarter

Founded in 2003, DocuSign is the pioneer of e-signature and offers software as a service that allows people and organisations to sign legally binding documents electronically.

The platform digitizes the whole signing process from preparing the agreement, making sure that the correct people receive it, to storing it after it is signed. DocuSign makes the overall process of signing a document a lot faster and significantly reduces error rates, and its integrations with many other software platforms (such as Google Drive or Salesforce) allow companies to generate and send new agreements to their customers at the click of the button. It is an interesting company to watch because it is profiting from the overall digitization of the economy as the product is useful to any company, large or small, across a wide range of industries.

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.

DocuSign is competing with products like Dropbox’s (NASDAQ:DBX) HelloSign or Adobe Sign (NASDAQ:ADBE).

Sales Growth

As you can see below, DocuSign's revenue growth has been exceptional over the last year, growing from quarterly revenue of $342.2 million, to $511.8 million.

DocuSign Total Revenue

And unsurprisingly, this was another great quarter for DocuSign with revenue up an absolutely stunning 49.5% year on year. On top of that, revenue increased $42.7 million quarter on quarter, a solid improvement on the $38.1 million increase in Q1 2022, and even a sign of slight acceleration of growth.

Analysts covering the company are expecting the revenues to grow 31.3% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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, licences, technical support and other necessary running expenses was at 77.7% in Q2.

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. Trending up over the last year, 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 Q2 Results

With a market capitalization of $57.9 billion, more than $822.8 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.

We were impressed by the exceptional revenue growth DocuSign delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is down -1.46% on the results and currently trades at $290 per share.

Is Now The Time?

DocuSign may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think DocuSign is a good business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its strong gross margins suggest it can operate profitably and sustainably.

The market is certainly expecting long term growth from DocuSign given its price to sales ratio based on the next twelve months is 24.5. There is definitely a lot of things to like about DocuSign and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

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