What Happened:
Shares of e-signature company DocuSign (DOCU) jumped 14.3% in the afternoon session after the Wall Street Journal reported that the company is exploring a potential sale. According to the sources, discussions are in the early stages, and there's no guarantee of a deal. The company saw increased demand during the pandemic, driven by the need for technology to facilitate virtual signatures on contracts and other documents. However, demand has since normalized as workplaces shifted back to in-person operations and competition from the likes of Adobe continues.
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What is the market telling us:
DocuSign's shares are very volatile and over the last year have had 11 moves greater than 5%. But moves this big are very rare even for DocuSign and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 8 days ago, when the stock gained 4.8% on the news that the company reported a "beat and raise" quarter. Third quarter results topped analysts' billings and revenue expectations. Profits were also better-than-expected in the quarter, showing not only topline momentum but expense efficiency and leverage. Despite the challenging macro environment, the company observed signs of business stabilization, highlighting notable improvement in key topline metrics tracking demand from large customers. However, DocuSign also called out headwinds, including spending optimization and IT budget scrutiny, which impacted expansion from existing customers, resulting in a deceleration in dollar net retention (100% vs. 102% in the previous quarter).
Looking ahead, next quarter's revenue guidance came in higher than Wall Street's estimates. For the full year, guidance was raised across the board. Zooming out, this was a decent quarter, showing that the company is staying on target despite more demanding business conditions.
DocuSign is up 12.5% since the beginning of the year, and at $64.05 per share it is trading close to its 52-week high of $67.83 from February 2023. Investors who bought $1,000 worth of DocuSign's shares 5 years ago would now be looking at an investment worth $1,529.
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