DocuSign Shares Sink on Guidance. Time to Buy the Dip?


Here’s why DocuSign shares fell and why a rebound could be around the corner.

Shares of DocuSign (DOCU -4.67%) were sliding after the electronic signature-solutions provider reported its fiscal 2025 first-quarter results. The stock is down over 10% year to date after a late surge in 2023 when the company was close to selling itself to private equity.

Let’s take a closer look at the company’s most recent quarterly results and determine whether the dip in stock price is a buying opportunity.

Solid revenue growth, but bookings guidance disappoints

For the quarter ended April 30, DocuSign’s revenue climbed 7% year over year to $709.6 million. Subscription revenue rose 8% to $691.5 million, while professional-service revenue fell 18% to $18.2 million. Management had previously guided for total Q1 revenue between $704 million and $708 million.

The company continues to make inroads abroad with international revenue jumping 17% year over year and now making up 28% of total revenue.

Billings came in at $709.5 million, up 5% year over year and well above the $685 million to $695 million guidance.

DocuSign added over 50,000 customers in the quarter, bringing its customer base to 1.56 million, up 11% versus a year ago. The number of customers with annualized-contracted value of $300,000 or more was relatively stable at 1,059.

Dollar-net retention in the quarter was 99%. This was up from 98% the previous quarter but down from 105% a year ago.

Gross margin remained strong, although it fell slightly, coming in at 78.9% versus 79.4% a year ago. Adjusted earnings per share (EPS) rose 14% to $0.82.

The company generated $254.8 million of operating cash flow in the quarter, while free cash flow came in at $232.1 million. It ended the period with cash and investments of $1.2 billion and no debt, giving it the ability boost its share repurchase program by an additional $1 billion.

Looking ahead, management is projecting full-year revenue of $2.92 billion to $2.93 billion, with subscription revenue of $2.84 billion to $2.86 billion. Billings are expected to land between $2.98 billion and $3.03 billion.

While DocuSign revised the high end of its full-year outlook $6 million higher, the increase was less than the company’s $14.5 million beat on billings last quarter, which disappointed investors. However, the company is likely taking a conservative stance given the current environment.

Moving forward, DocuSign is looking to transition into more of a platform company with its Intelligent Agreement Management (IAM) solution that combines its e-signature and contract lifecycle management (CLM) products. There are also new features such as Maestro, Navigator, and App Center. Maestro is an agreement-workflow builder that automates the creation of agreements without any coding needed, while Navigator will store, manage, and analyze a customer’s entire library of accumulated agreements. App Center will let customers integrate third-party applications into their agreement workflows.

Image source: Getty Images.

Time to buy the dip?

There have been some headwinds to DocuSign’s business as COVID-19 pulled forward demand for its core e-signature product, while a lackluster housing market has negatively impacted one of its most important market verticals in residential real estate contracts.

However, the company has still been able to grow its revenue through this period, and it generates a lot of free cash flow. It has also been trying to push innovation to move beyond the core e-signature product that it’s known for currently.

The stock trades at a forward price-to-earnings (P/E) ratio of just over 16 and an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of 11. The latter metric considers its net-cash position and takes out non-cash expenses. In either case, the stock is attractively priced.

DOCU PE Ratio (Forward) Chart

Data by YCharts.

While investors were disappointed by guidance, this looks like a great time to buy the dip. The launch of DocuSign’s IAM platform could just be the type of innovation the company needs to help reaccelerate growth. Meanwhile, it will look to incorporate the artificial intelligence (AI) technology it’s gaining from its recent acquisition of Lexion to help further improve its new platform.

At the same time, the company’s strong balance sheet and free-cash-flow generation, along with its large buyback plan and attractive valuation, should at the very least put a floor under the stock as the company looks to reinvigorate growth.



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