DocuSign, Inc. (DOCU) is one of those tech companies that gained a significant boost from the accelerated shift towards the digital world amid the COVID-19 pandemic.
The e-signature provider witnessed a strong demand for its products, including the higher adoption of its broader agreement cloud offering, as reflected through a 49% year-over-year growth in revenues and a 56% rise in billings in FY21. Furthermore, DocuSign’s customer base soared over 51%, while the net retention rate was 123%. (See DocuSign stock charts on TipRanks)
Thanks to the structural shift in the way we work and learn, the momentum in DocuSign’s business continued in FY22 despite the easing of stay-at-home measures. (Read more: DocuSign Exceeds Q2 Expectations, Provides Guidance)
However, investors fled DocuSign stock on concerns of a slowdown in growth rate. Notably, TipRanks’ Stock Investors tool indicates that investors currently have a Very Negative outlook on DocuSign stock, with 2.4% of investors who hold portfolios in TipRanks decreasing their exposure over the past month.
It’s worth noting that DocuSign’s revenue and billings growth rate decelerated to 50% and 47%, respectively, in Q2 from 58% and 54% in Q1. Moreover, its Q3 guidance indicates further moderation in the growth rate.
DocuSign expects to report revenue in the range of $526 million to $532 million in Q3, reflecting year-over-year growth of 37% to 39%. Furthermore, billings are projected to be between $585 million to $597 million, representing a year-over-year increase of 33% to 36%.
The moderation in growth shouldn’t surprise investors, as DocuSign is up against tough year-over-year comparisons in FY22. Further, its growth rate remains higher than it was in the pre-pandemic phase, which is encouraging. Thanks to the sustained momentum in its business, I have a bullish outlook on DocuSign.
Highlighting the moderation in growth rate, Needham analyst Scott Berg stated, “Sales metrics and growth decelerated Q/Q, as we expected against a massive pandemic quarter, but at a much slower rate than we believe much of the Street was anticipating.”
He added that “65k net new customers was lower than the 70k – 90 range of CY20 but was still more than 2x greater than any pre-pandemic quarter, highlighting a strong end-market driving 47% billings growth against a strong comp.”
Berg maintained a Buy rating on DocuSign stock and increased the price target to $340 (9.7% upside potential) from $275. The 5-star analyst stated that the hike in price target indicates that “we expect sales to exceed expectations in the absence of a significant post-pandemic slow down.”
Berg is not the only analyst with a bullish outlook on DocuSign. On TipRanks, DOCU has received 15 positive analyst reviews, for a unanimous Strong Buy consensus rating.
The average DocuSign price target of $340.29 implies 9.8% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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