DocuSign, Inc. (DOCU), a leader in e-signature and intelligent agreements, is set to release its third quarter fiscal 2024 results on Thursday, December 7, 2023, after the market’s close. Analysts expect the company’s revenue and EPS for the third quarter (ended October 2023) to increase 6.9% and 11% year-over-year to $690.12 million and $0.63, respectively.

For the third quarter, DOCU expects total revenue to be between $687 and $691 million and Subscription revenue to be $669-$673 million. Also, the company’s non-GAAP gross margin and non-GAAP operating margin are expected to be 81-82% and 22-23%, respectively.

For the fiscal year ending January 31, 2024, the e-signature provider currently expects total revenue to arrive between $2.73 and $2.74 billion and Subscription revenue to be $2.65-$2.66 billion. DOCU projects its non-GAAP gross margin and non-GAAP operating margin to be 81%-82% and 23%-24%, respectively.

Moreover, the company surpassed analyst estimates for revenue and earnings in the second quarter of fiscal 2024. DOCU reported revenue of $687.69 million, beating the analysts’ estimate of $677.42 million. This compared to $622.18 million in the prior year’s quarter. Subscription revenue grew 10.6% year-over-year, while Professional services and other revenue were up 7.8%.

In addition, the company posted a second-quarter adjusted EPS of $0.72, compared to the consensus estimate of $0.66, and up 63.6% year-over-year.

“Our results for the first half were solid and reflect strong progress on our business transformation,” said Allan Thygesen, DOCU’s CEO. “We increased our pace of innovation by delivering key new features, while strengthening our self-service and partner distribution channels, and we've received tremendous enthusiasm on our product roadmap, particularly from our enterprise customers.”

During the year, DocuSign announced several new product capabilities with highlights in the following areas: Liveness Detection for ID Verification, the new feature, part of DOCU’s Identify portfolio, uses AI-enabled biometric checks to confirm signers; and DocuSign Monitor Integration with CLM offering customers with deeper, real-time visibility into their contract lifecycle.

Also, on September 7, 2023, DOCU’s Board of Directors authorized an increase of $300 million to its existing stock repurchase program for a total aggregate amount of up to $500 million of DocuSign’s outstanding common stock.

Shares of DOCU have gained 18.9% over the past month to close its last trading session at $45.99.

Here’s what could influence DOCU’s performance in the upcoming months:

Positive Recent Developments

On November 30, DOCU achieved StateRAMP authorization, deepening the company’s commitment to providing state and local governments access to seamless and secure agreement experiences. DOCU’s state, local and education customers can now use DocuSign solutions like CLM and eSignature (DocuSign Federal) in the StateRAMP-authorized environment.

On November 14, DocuSign launched WhatsApp Integration to accelerate business globally. The latest expansion will allow customers to reach signers seamlessly through their preferred communication platforms; the DocuSign eSignature integration of WhatsApp sends users real-time notifications that link directly to agreements and enable quick, secure signing.

Solid Financials

For the second quarter that ended July 31, 2023, DOCU’s total revenue increased 10.6% year-over-year to $669.37 million. Also, its non-GAAP billings were $711.19 million, up 9.8% from the prior year’s quarter. The company’s non-GAAP gross profit grew 11.3% from the year-ago value to $565.79 million.

Furthermore, DOCU’s non-GAAP income from operations grew 51.4% year-over-year to $169.87 million. Its non-GAAP net income was $149.62 million, or $0.72 per share, compared to $90.12 million, or $0.44 per share in the prior year’s quarter, respectively.

The company’s non-GAAP free cash flow for the quarter came in at $183.64 million, an increase of 74.1% year-over-year. As of July 31, 2023, its cash and cash equivalents stood at $1.02 billion, compared to $721.90 million as of January 31, 2023.

Impressive Historical Growth

Over the past three years, DOCU’s revenue has grown at a CAGR of 31.6%. Its total assets have improved at a CAGR of 16.8% over the same period. In addition, the company’s levered free cash flow has increased at a CAGR of 41.4% over the same time frame, while its tangible book value has grown at a 195.6% CAGR.

Favorable Analyst Estimates

Analysts expect DOCU’s revenue for the fiscal year (ending January 2024) to increase 8.6% year-over-year to $2.73 billion. The consensus EPS estimate of $2.65 for the ongoing year reflects a 30.5% year-over-year improvement. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

For the fiscal year 2025, the company’s revenue and EPS are expected to grow 6.7% and 3.1% year-over-year to $2.92 billion and $2.73, respectively.

Robust Profitability

DOCU’s trailing-12-month gross profit margin of 79.46% is 63.25% higher than the 48.67% industry average. The stock’s trailing-12-month EBIT margin of 6.65% is 41.8% higher than the 4.69% industry average. Likewise, its trailing-12-month levered FCF margin of 36.52% is 345.3% higher than the 8.20% industry average.

Moreover, the stock’s trailing-12-month ROTC of 7.38% is significantly higher than the industry average of 2.60%. Its trailing-12-month CAPEX/Sales of 3.28% is 40.75% higher than the industry average of 2.33%.

Low Valuation

In terms of forward non-GAAP P/E, DOCU is currently trading at 17.36x, 23% lower than the industry average of 22.54x. Also, the stock’s forward EV/EBITDA of 12.35x is 16.6% lower than the industry average of 14.80x. Its forward EV/EBIT and Price/Cash Flow of 49.75x and 12.29x are favorably lower than the respective industry averages of 19.44x and 21.38x.

POWR Ratings Reflect Promise

DOCU’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DOCU has a B grade for Growth, consistent with its solid financial performance and optimistic analyst expectations.

The stock also has a B grade for Quality and Value, in sync with higher profitability and lower valuation relative to its peers, respectively.

DOCU is ranked #3 out of 22 stocks in the A-rated Software - SAAS industry.

Beyond what I have stated above, we have also given DOCU grades for Sentiment, Momentum, and Stability. Get access to all the DOCU Ratings here.

Bottom Line

DOCU beat analysts’ fiscal 2024 second-quarter estimates for revenue and earnings. Further, the global e-signature provider issued positive financial guidance for the third quarter and full year 2024. Since its inception in 2023, DocuSign has pioneered the development of eSignature, offering the world’s #1 e-signature product as part of its industry-leading lineup.

More than 1 million customers and approximately a billion users in nearly 180 countries use DOCU’s products and solutions to accelerate the process of doing business and simplify people’s lives. The company continues to execute its strategy and leverage its competitive advantages, especially in AI, positioning it for continued business progress.

Given DOCU’s robust financials, robust profitability, low valuation, and bright growth prospects, this software stock could be an ideal buy before its upcoming earnings.

How Does DocuSign, Inc. (DOCU) Stack Up Against Its Peers?

While DOCU has an overall POWR Rating of B, investors could also check out these other stocks within the Software - SAAS industry with A (Strong Buy) or B (Buy) ratings: Informatica Inc. (INFA), The Sage Group plc (SGPYY), and EverCommerce Inc. (EVCM).

For exploring more A and B-rated software stocks, click here.

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DOCU shares were unchanged in premarket trading Monday. Year-to-date, DOCU has declined -17.02%, versus a 21.38% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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