Could doubled Q3 earnings drive DocuSign share price?

Analysts polled on CNN Money expect the group, which is best known for its electronic signature product, to report adjusted earnings per share of $0.46, compared with $0.22 in the same period last year and revenues of $532.6m. It will have been boosted by the continued use of electronic signatures, which allow contracts and deals to be signed remotely, during the pandemic and the acceleration of efforts to reduce the use of paper.

Wall Street also expects subscription revenue of $510.1m, up from $366.6m, and billings of $586.9m, up from $440.4m.

Lockdown Signs

E-signatures came into their own during lockdown as businesses, from banks to fund administrators and lawyers, used them to keep operations running.

DocuSign's second quarter results were strong with the group reporting revenues of $511.8m, up 50% year-over-year.

Dan Springer, DocuSign CEO, said at the time "In partnership with our customers, we are eliminating paper, automating end-to-end agreement processes and enabling better experiences in the anywhere economy."

Even as more people return to the office, the forecasts are for the eSignature/digital signature market to keep flourishing.

It is expected to reach $7.99bn by 2027, meaning a compound annual growth rate of 28.9% from 2020. The main users will be retail, healthcare, government, IT and telecom industries, according to a report by Fortune Business Insights.

"The long-term fundamentals for DocuSign's tools remains strong regardless as it makes everything from signing a new employment contract to a mortgage simpler, quicker and safer," said Joshua Warner of City Index.

Partnerships

DocuSign is also expected to benefit from its tie-up with Salesforce, which has recently included automating the contract process with AI-based solutions to prepare, sign and manage agreements.

The company also has an eye on the future with its new DocuSign Ventures initiative, which aims to co-invest and partner with early-stage companies in the agreement process sector.

Despite the positive fundamentals over the last 12 months, the DocuSign share price has only increased by 10%.

It hit a low of $180 in mid-May as investors turned away from growth to value stocks, and as fears rose that DocuSign and other businesses, which had benefited from remote working, would suffer as society reopened.

However, the realisation that many of the habits developed during the pandemic, such as the use of digital signatures, would be maintained, and the development of more hybrid, home/office work patterns, has helped the share price to recover.

It touched $310 in September and now sits at $252 at the close on 29 November.

Despite some concerns about slowing revenue growth between the second and third quarter, and its continued losses analysts are bullish that the share price can continue heading north.

Analysts' Views

According to Market Screener, a consensus of analysts has a Buy rating on the stock and an average target price of $328.2.

UBS has a 'buy' rating and a price target of $350 with analyst Karl Keirstead believing that DocuSign is set to keep recording high growth rates for a long time. Needham has a $340 price target with analyst Scott Berg encouraged that the group's revenue growth drop has been slower than expected as the economy reopened.

Triggers for the Share Price

Management will be asked their views on the potential impact of the Omicron coronavirus variant, the possibility of future lockdowns and a further boost to DocuSign demand.

The current spend of its clients and subscription revenues growth will also be in focus, as will any new developments in its tie-up with Salesforce and DocuSign Ventures.

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