DocuSign (DOCU)

Electronic signature company DocuSign (NASDAQ:DOCU) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 8.8% year on year to $800.6 million. Guidance for next quarter’s revenue was better than expected at $806 million at the midpoint, 1.1% above analysts’ estimates. Its non-GAAP profit of $0.92 per share was 8.6% above analysts’ consensus estimates.

Company Overview

Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ:DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.

The catch phrase "digital transformation" originally 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.

DocuSign's primary global competitor is Adobe Acrobat Sign (formerly Adobe Sign), part of Adobe Inc. (NASDAQ:ADBE). Other competitors include HelloSign (owned by Dropbox), PandaDoc, SignNow, and various enterprise software providers that have incorporated electronic signature capabilities into their platforms.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, DocuSign’s sales grew at a sluggish 9.8% compounded annual growth rate over the last three years. This was below our standard for the software sector and is a rough starting point for our analysis.

This quarter, DocuSign reported year-on-year revenue growth of 8.8%, and its $800.6 million of revenue exceeded Wall Street’s estimates by 2.5%. Company management is currently guiding for a 6.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

DocuSign’s billings came in at $818 million in Q2, and over the last four quarters, its growth slightly lagged the sector as it averaged 9.2% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

DocuSign is extremely efficient at acquiring new customers, and its CAC payback period checked in at 12.3 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like DocuSign, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

DocuSign’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 79.5% gross margin over the last year. Said differently, roughly $79.47 was left to spend on selling, marketing, and R&D for every $100 in revenue.

DocuSign’s gross profit margin came in at 79.3% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

DocuSign has been an efficient company over the last year. It was one of the more profitable businesses in the software sector, boasting an average operating margin of 7.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, DocuSign’s operating margin rose by 4.1 percentage points over the last year, as its sales growth gave it operating leverage.

In Q2, DocuSign generated an operating margin profit margin of 8.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

DocuSign has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 30.2% over the last year.

DocuSign’s free cash flow clocked in at $217.6 million in Q2, equivalent to a 27.2% margin. This cash profitability was in line with the comparable period last year but below its one-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts’ consensus estimates show they’re expecting DocuSign’s free cash flow margin of 30.2% for the last 12 months to remain the same.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

DocuSign is a profitable, well-capitalized company with $844.5 million of cash and $126.9 million of debt on its balance sheet. This $717.5 million net cash position is 4.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

This was a beat and raise quarter, We were impressed by how significantly DocuSign blew past analysts’ billings expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Looking forward, full-year revenue guidance was raised, reflecting management's confidence in demand trends. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 6.7% to $81.39 immediately following the results.

Updated: November 13, 2025 at 9:01 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

DocuSign isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its ARR has disappointed and shows the company is having difficulty retaining customers and their spending. And while the company’s efficient sales strategy allows it to target and onboard new users at scale, the downside is its expanding operating margin shows it’s becoming more efficient at building and selling its software.

DocuSign’s price-to-sales ratio based on the next 12 months is 4.4x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $93.75 on the company (compared to the current share price of $67.08).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.