Exciting news for anyone who bought DocuSign (NASDAQ:DOCU) stock yesterday, because it shot up over 14% in Friday afternoon’s trading. Reports emerged that the entire company may end up bought in fairly short order, going private in a leveraged buyout.
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DocuSign offers a way to sign digital documents in a legally-binding fashion, and that has apparently drawn the attention of several potential buyers. In fact, DocuSign is in talks with at least one of them right now, though the talks are still regarded as “early stage.” But if they go as planned, one private equity firm—or perhaps another technology firm—will walk away with DocuSign’s property. DocuSign has seen huge gains in recent days, with a nine-session set of gains only recently turned red. Perhaps more interestingly, this measure comes at a time when leveraged buyouts are actually down nearly a third overall for the year.
Earnings May Have Drawn Attention
Speaking of timing, this was an odd time for someone to express interest in a potential buyout. Just a week ago, DocuSign posted its third-quarter earnings report. The report presented a rather exciting overall picture of the field, featuring billings up around 5%, subscription revenue up around 9%, but professional services revenue down 16%. Given that professional services revenue was actually the lowest of the lot anyway, this isn’t exactly bad news. The whole report in aggregate, meanwhile, suggests an absolute banner quarter, and potentially, the kind of thing that might draw a potential buyer’s interest. Throw in the increasing prevalence of digital everything, and a means to sign documents remotely does make more sense.
Is DocuSign a Buy, Hold or Sell?
Turning to Wall Street, analysts have a Hold consensus rating on DOCU stock based on three Buys, 11 Holds and three Sells assigned in the past three months, as indicated by the graphic below. After a 14.34% rally in its share price over the past year, the average DOCU price target of $57.21 per share implies 8.42% downside risk.
