Enterprise software is one of the least-affected sectors by the pandemic, and the companies within this space have managed to reported strong results in what can be termed as one of the worst quarters in recent history for the global economy.
An increasing number of businesses are turning towards digital applications that can increase work efficiency while promoting a work-from-home environment. DocuSign Inc (DOCU, Financial) is one such player within the e-signature and cloud-based solutions space that has managed to deliver a string of solid results. The company has made some pertinent acquisitions and is well on track for a strong 2020.
Company overview
DocuSign, Inc. is an e-signature solutions provider that helps companies to digitally prepare, execute and act on agreements. The goal of DocuSign’s offerings is to automate manual, paper-based processes with the open, independent, standards-based digital transaction management platform for managing all aspects of documented business transactions. The company has a headcount of around 3,909 employees and is headquartered in San Francisco, California.
DocuSign has a number of offerings, such as: Intelligent Insights, an artificial intelligence (AI) system to search and analyze agreements by legal concepts and clauses; Gen for Salesforce, a solution for sales representatives to automatically generate agreements within Salesforce; Guided Forms, a system to have complex forms be filled via an interactive and step-by-step process; Standards-Based Signatures, a software to support signatures that involve digital certificates; FedRAMP, an authorized version of DocuSign eSignature for U.S. federal government agencies; and many more. The best part about its products is that any device with an internet connection can use most of its offerings.
Strong results
DocuSign recently released its earnings results for the first quarter of fiscal 2021, where it managed to beat analyst expectations on the revenue front as well as the earnings front for the third time in a row. The company saw revenues grow by about 39% to $297 million from $214 million in the prior-year quarter, well above the analyst estimates of $281.1 million. The DocuSign management had previously guided for $282 million in revenue for this quarter.
The company reported adjusted earnings per share of 12 cents in the latest quarter, up from 7 cents in the prior-year quarter and beating the analyst consensus estimate of 10 cents.
The company is a market leader with more than 60% of the e-signature market, with competition from Adobe (ADBE, Financial), Citrix (CTXS, Financial), OneSpan (OSPN, Financial) and HelloSign (owned by Dropbox (DBX, Financial). The penetration of e-signatures has been low but is rapidly increasing, thus boosting the top-line of this company. Its customer base has grown from around 370,000 in 2018 to around 585,000, today which is truly phenomenal. DocuSign’s average billing per customer has almost doubled in this period from $599.10 to $1103.60, and this is the reason why it has an impressive gross margin of close to 75%.
Another important factor that worth highlighting is that around 94% of DocuSign’s revenues are subscription-based, which means they are highly stable and render strong foreseeability to the business. This a key factor responsible for the company trading at high valuation multiples.
Solid acquisitions
DocuSign has carried out two highly pertinent acquisitions over the past couple of years – SpringCM and Seal Software. The SpringCM acquisition took place in 2018 for $220 million and it has been well integrated into DocuSign as a cloud-based document generation and contract lifecycle management software. The DocuSign management is able to speed up its customers' ability to modernize their entire process from preparing to signing, acting on and managing agreements. CEO Dan Springer and his team considered the acquisition a big step in the company’s journey of digital transformation.
In February 2020, the company followed the SpringCM acquisition with another deal to significantly advance its AI capabilities, buying Seal Software for $188 million. Seal Software uses artificial intelligence for contract analytics, and its solutions empower DocuSign Total Search and DocuSign Intelligent Insights to help companies maximize revenue opportunities, identify compliance risk and reduce expenses and costs associated with managing and analyzing contractual agreements across the enterprise. Total Search and DocuSign Intelligent Insights have been solid offerings by the company that has been guiding companies in the agreement review process through increased automation, indexing, deduplication and on-boarding of agreements, and most importantly, greater depth and accuracy in the agreement review process. The strengthening of DocuSign’s AI capabilities could go a long way in the company building a superior product.
Key takeaways
As we can see in the chart above, DocuSign’s stock has appreciated as much as 208% in the past year. One of the reasons is the company’s core addressable market of e-signatures, which has a market size of $25 billion across the globe, whereas its other cloud-based solutions have an additional $25 billion in terms of addressable market.
At its current turnover, the company is catering to less than 2% of this total addressable market. With remote work gaining more popularity among companies, the market pie of DocuSign is only expected to grow, making it a compelling stock to have in one’s portfolio, in my opinion.
Disclosure: No positions.
Read more here:
- Splunk: Almost Unaffected
- Foot Locker: A Slow Path to Recovery
- Blue Apron: The Meal Kit Demand Is Rising
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
