NEW YORK (Reuters Breakingviews) – It’s always the fine print that carries the bite. DocuSign shares plunged 40% on Friday, after warning https://investor.docusign.com/investors/press-releases/press-release-details/2021/DocuSign-Announces-Third-Quarter-Fiscal-2022- Financial- The results that demand for its electronic signature software had slowed faster than expected. The market response is dramatic, but for investors buying stocks in nonprofits backed by aggressive projections, sharp corrections are all part of the unspoken contract.
The particular problem with DocuSign is that it did not predict how quickly an increase in business would stop. Managing Director Dan Springer says his sales teams were so driven by fulfilling customer orders that they didn’t have a chance to prepare new ones. DocuSign now expects to charge its customers 23% more in the current quarter than a year ago, when in the summer it grew twice as fast.
The problem is, in a sparkling market, small changes lead to big changes. DocuSign had reached a market cap of $ 46 billion – after tripling in less than a year – because investors were following the dotted line on some dizzying trends. Springer’s company had 285,000 customers about five years ago, and it now has 1.1 million. It has gone from $ 349 million in revenue in 2017 to a forecast of $ 2.1 billion next year.
The calculation of the revised assumptions is ruthless. If DocuSign could grow its revenue by 30% per year over the next five years, it would end up at nearly $ 7.5 billion by 2027. Reduce that growth rate to 20% and revenue will rise to just 5 billion. billion dollars, or one-third of the DocuSign fair. value, all other things being equal. In addition, Springer is committed to investing “aggressively” to revive customer demand, so in the short term, profitability will likely suffer as well.
Even with $ 5 billion in future sales, DocuSign would still have landed a 10% share of what it says is the total addressable market of $ 50 billion, a completely respectable result. And its estimate of its potential market has doubled since its IPO in 2018. But long-term projections only stand as investor confidence in the direction that backs them. On this point, DocuSign has negotiations to do.
Follow @johnsfoley https://twitter.com/johnsfoley on Twitter
– DocuSign shares fell 40% on December 3 after the contract signing software maker said demand for its products unexpectedly slowed and dampened its estimated growth in 2022.
– The company said it billed its customers 28% more in the third quarter than a year earlier and that revenue of $ 546 million was 42% higher year-over-year.
– DocuSign said billings for 2022 will hit $ 2.3 billion when in September it forecast billings of $ 2.4 billion. Its $ 2.1 billion revenue forecast was pretty much unchanged.
– Managing Director Dan Springer told analysts that âwe haven’t performed in our business the way you should expect us toâ, and pledged to invest âaggressivelyâ in them. sales and training.
(Editing by Jennifer Saba and Amanda Gomez)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.