Over the years, e-signature company DocuSign (DOCU, Financial) has transitioned from a crisis response option to a business-as-usual solution driven by the increasing digital transformation across the world. The Covid-19 pandemic and the work-from-home environment created a strong need for agreements to be prepared, signed and acted on digitially from anywhere in the world, and this was has greatly sped up the company's growth.
The management strongly believes that its growing customer base is here to stay and is not going back to paper, even after the impact of the pandemic recedes. This accelerated growth is why I am optimistic about a continued uptrend in the long-term trajectory of DocuSign's share price.
Financial performance
DocuSign reported yet another solid result recently, surpassing Wall Street expectations in terms of both revenues as well as earnings.
The company reported a top-line of $430.9 million for the fourth quarter of fiscal 2021, surpassing the analyst consensus estimate of $407.96 million. This was a result of a huge increase in the customer base (over 70,000 new customers added) and helped DocuSign in comfortably surpassing the $1 billion revenue milestone for the year. For the full fiscal year, revenue was $1.45 billion.
DocuSign also witnessed a strong margin expansion and its adjusted earnings per share (EPS) was 37 cents for the fourth quarter, well above the analyst consensus estimate of 22 cents.
Agreement Cloud evolution
DocuSign has become the go-to platform for signing legal documents online, and the way the company is continuing to expand beyond its original solution is to offer its Agreement Cloud suite of products.
The process includes integrating DocuSign CLM and eSignature, productivity software and cloud storage systems to manage end-to-end agreements from the initial draft to executing the contract in a timely manner. The platform has over 350 built-in integrations to tools like Slack, Microsoft (MSFT) Teams and Workplace from Facebook (FB) extending the benefits of digital signing and ensuring that clients' eSignature volumes remain high. The suite also provides the benefit of examining contracts to identify issues, assess risk and create smart purpose-built contacts from scratch using artificial intelligence.
With all the speed, accuracy and efficiency benefits, more and more companies are moving their functions into the virtual realm. Most clients who get used to the utility of digital signatures want to explore and become customers of Agreement Cloud, which can lead to continuing growth in DocuSign's subscriber base in the years to come.
Strong expected growth in digital signatures
As per research provided by Markets and Markets, the digital signature market is expected to grow from $2.8 billion in 2020 to $14.1 billion by 2026, with a CAGR of 31% during the forecasted period.
DocuSign remains the dominant player in this market. The company is breaking new grounds by adding more options to its leading product like identity proofing, clickwrap and electronic witnessing. In addition to that, DocuSign is also planning to institute remote online notary transactions where clients will be notarizing documents on their end with an in-house notary.
DocuSign controls about 70% of the eSignature market, and the management believes that their higher market share lead and advanced product capabilities should give them an edge over their primary competitors. Apart from this, it is worth mentioning that despite the fact that DocuSign is getting the majority of its revenue from the U.S, its international revenue increased 83% year over year in the fourth quarter, which means the company has started to gain significant momentum outside the U.S. and tap into the non-U.S. addressable market.
Final thoughts
As we can see in the above chart, DocuSign's stock price has nearly tripled in the past 12 months. The company's revenues have grown well, but the appreciation of the company's stock has been more of a combination of revenue growth and multiples expansion. We see a distinct appreciation of the company's price-to-sales ratio as well along with the rising top-line. If DocuSign can continue to hold on to its current position and maintain its market share in this fast-growing industry, I believe that the stock could easily justify these high multiples.
Disclosure: No positions.
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