12/03/2021
DocuSign Inc (NASDAQ: DOCU)
It's been on my watchlist for a while and I'm pretty sure I had some at one time so maybe now that it's on sale it's a buying opportunity despite issuing q4 2021 and FY22 revenue guidance below expectations.
Price at write-up $134.26 (-52.08%, -32.61%, -37.99%)
Indexes (30, 180, 365 day)
VIX: 34.60 (16.03, 17.48, 21.17)
TED: 0.12 (0.09, 0.11, 0.15)
S&P500: 4,508.51 (-0.79%, 8.93%, 24.97%)
Fed: 0.08 (0.08, 0.08, 0.09)
Reported Inflation rate: 4.8% (2020 1.2%)
Actual inflation rate: 6.2% (2020 1.4%)
Valuation Ratios
Target: $225
The company failed to meet it's own guidance and CEO "dropped the ball". DocuSign is more or less the market leader in providing e-signature solutions notably for contract and real estate transactions. The stock and revenue saw sharp bumps with the Pandemic and glut of people staying at home. DOCU's gross profit margin is quite high at 81% but it's net profit is -5%. I suspect they are heavily investing in expanding their sales force, marketing, as Cynthia Gaylor, CFO, stated during the q2 earnings call "we're really looking to make sure we're investing for growth, just given the large market opportunity we have and the traction we're seeing in the business . . . particularly building sales capacity in our marketing programs and in our product development teams."
My Thoughts
I think the signature product of DOCU is the e-signature and I'm not so sure how much it is the "tip of the spear" as the CEO claims at least as yet. All the "development products": document management, analytics, and other "sign" here related "products" are paltry and possibly stupid or better done by the competition. Indeed in all the products it's expanding to I don't really see the value proposition beyond making documents electronic, which can literally be done by anyone for virtually no cost so expanding in that direction with a product or service based on fees would mean those segments of DOCU's business would need to provide significant value, and I don't see that being the case. They do seem hell-bent on being more than "just an e-signature company" and I wish them luck as they try to break into HR, Legal, Sales, and non-signatory industries by selling services. It's not totally unreasonable for them to want to be in that market, but I don't see the value add for customers so the CEO et all might be just throwing good money after bad. From 2019-2021 95% of revenue is from e-signature subscriptions.
Risks
Conclusion
I bought some shares at 134.50 before doing my full investigation which I figured would take longer than the market would remain open which has proven true. I used to believe that I would be a long term holder of DOCU when I first acquired it, but that didn't prove true when I sold it around $280 some months ago (for unrelated/momentum reasons) and now that I'm doing a real evaluation I find this might just be a momentum stock. The company really doesn't do anything special other than being the only company that has removed the burden of signing software from the user. That seems to be it's only advantage. I think a lot of analysts are blind to this. I think a lot of people will probably bid DOCU back up to around 225+ (250+?) so sentiment will need to be re-evaluated at that point. Barriers to entry are minimal and it would seem that only sheer incompetence on the part of their competitors is keeping DOCU as a market leader. But #1 in a commodified (or soon to be commodified) space is still #1 and that will be worth something for a time.
Due Diligence - ADBE, ADSK, U, Bill, ZM, SNPS, TTD, ANSS
DocuSign Inc (NASDAQ: DOCU)
It's been on my watchlist for a while and I'm pretty sure I had some at one time so maybe now that it's on sale it's a buying opportunity despite issuing q4 2021 and FY22 revenue guidance below expectations.
Price at write-up $134.26 (-52.08%, -32.61%, -37.99%)
Indexes (30, 180, 365 day)
VIX: 34.60 (16.03, 17.48, 21.17)
TED: 0.12 (0.09, 0.11, 0.15)
S&P500: 4,508.51 (-0.79%, 8.93%, 24.97%)
Fed: 0.08 (0.08, 0.08, 0.09)
Reported Inflation rate: 4.8% (2020 1.2%)
Actual inflation rate: 6.2% (2020 1.4%)
Valuation Ratios
| Price/Earnings (TTM) | Neg |
| Price/Sales (TTM) | 29.77 |
| Earnings per share | -0.87 |
| Price/Book (MRQ) | 214.01x |
| Price/Cash Flow (TTM) | 137.85 |
| Held by institutions | 74.47% |
| Short interest | 3.26% |
| Dividend | None |
| MarketCap | $26.6B |
| Beta | 1.0 |
Target: $225
The company failed to meet it's own guidance and CEO "dropped the ball". DocuSign is more or less the market leader in providing e-signature solutions notably for contract and real estate transactions. The stock and revenue saw sharp bumps with the Pandemic and glut of people staying at home. DOCU's gross profit margin is quite high at 81% but it's net profit is -5%. I suspect they are heavily investing in expanding their sales force, marketing, as Cynthia Gaylor, CFO, stated during the q2 earnings call "we're really looking to make sure we're investing for growth, just given the large market opportunity we have and the traction we're seeing in the business . . . particularly building sales capacity in our marketing programs and in our product development teams."
My Thoughts
I think the signature product of DOCU is the e-signature and I'm not so sure how much it is the "tip of the spear" as the CEO claims at least as yet. All the "development products": document management, analytics, and other "sign" here related "products" are paltry and possibly stupid or better done by the competition. Indeed in all the products it's expanding to I don't really see the value proposition beyond making documents electronic, which can literally be done by anyone for virtually no cost so expanding in that direction with a product or service based on fees would mean those segments of DOCU's business would need to provide significant value, and I don't see that being the case. They do seem hell-bent on being more than "just an e-signature company" and I wish them luck as they try to break into HR, Legal, Sales, and non-signatory industries by selling services. It's not totally unreasonable for them to want to be in that market, but I don't see the value add for customers so the CEO et all might be just throwing good money after bad. From 2019-2021 95% of revenue is from e-signature subscriptions.
Risks
- 1) The expansion into other products and "solutions" is misguided or a wasted effort.
- 2) Adobe decides to flip the switch and become an equal in e-signatures instantly instead of insisting on its currently rather cumbersome current monetization strategy. Or any other SAS company otherwise increases the commoditization of eSig software and the resulting competition significantly erodes the sales price. For example, if Google just decides, tomorrow, to offer signature services for free in return for access to the contract data.
- 3) DOCU doesn't return to its median trading price because everyone now realizes it was always overvalued and a fair price for the stock is closer to $55 than $255.
Conclusion
I bought some shares at 134.50 before doing my full investigation which I figured would take longer than the market would remain open which has proven true. I used to believe that I would be a long term holder of DOCU when I first acquired it, but that didn't prove true when I sold it around $280 some months ago (for unrelated/momentum reasons) and now that I'm doing a real evaluation I find this might just be a momentum stock. The company really doesn't do anything special other than being the only company that has removed the burden of signing software from the user. That seems to be it's only advantage. I think a lot of analysts are blind to this. I think a lot of people will probably bid DOCU back up to around 225+ (250+?) so sentiment will need to be re-evaluated at that point. Barriers to entry are minimal and it would seem that only sheer incompetence on the part of their competitors is keeping DOCU as a market leader. But #1 in a commodified (or soon to be commodified) space is still #1 and that will be worth something for a time.
Due Diligence - ADBE, ADSK, U, Bill, ZM, SNPS, TTD, ANSS
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