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DocuSign Destined for Downside; Downgraded Guidance, Again
Stock Analysis & Ideas

DocuSign Destined for Downside; Downgraded Guidance, Again

DocuSign (DOCU) is a cloud-based software company that specializes in electronic signing solutions. Investor concerns over growth deceleration have caused the stock to suffer great losses over the last two quarters. The stock has lost approximately 73% of its value in the last six months and 66% over the past year.

Unfortunately, the business has shot itself in the foot again by releasing drab first-quarter expectations. As a result, and despite the firm crushing its 4Q22 earnings and revenues, investors abandoned DOCU in fear of the company’s dwindling prospects.

DocuSign’s Growth Continues to Decelerate

Despite the fact that DocuSign’s overall revenue increased year-over-year in the fourth quarter, the growth rate slowed from 42% in the third quarter to 35% in the fourth. Furthermore, billings, a rather important performance metric, increased by 25% in Q4. However, after growing at a rate of 28% in the third quarter, the deceleration was evident.

Furthermore, the company provided dismal guidance, which made investors wary.

For FQ1, DocuSign expects revenue of $581 million at the midpoint, well behind the Street’s expectation of $594.4 million. In addition, for Fiscal 2023, the business predicts sales of $2.476 billion at the midpoint, which is lower than the average expectation of $2.61 billion. The revenue forecast indicates a further slowdown in the growth rate.

The increased competition from Adobe (ADBE) in the electronic signature market could further damage the company’s financials and growth in the near future.

Following the company’s financial results and dismal guidance, the majority of analysts downgraded their target prices and ratings, acknowledging the downturn.

A Top Analyst Weighs In

One such analyst who remains concerned about DocuSign’s growth story is Scott Berg of Needham.

According to Berg, “decelerating post-pandemic demand,” might put pressure on DOCU shares in the near-term. Furthermore, he believes that while the company’s search for a new sales leader may be beneficial in the long-run, it could also delay the timeline for enhancing sales execution, posing a new operational risk in the short-term.

As a result of the near-term uncertainties, the analyst retains a Neutral rating.

Wall Street’s Take

On TipRanks, DocuSign stock commands a Moderate Buy consensus rating based on six Buys, nine Holds, and one sell. As for price targets, the average DOCU stock price prediction of $101.85 implies almost 35.8% upside potential from the current levels.

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