DOCU - DocuSign: Wait For Growth Inflection Point As Buy-Out Fantasies Fade

2024-02-14 07:57:16 ET

Summary

• Despite the recent pull-back, DOCU is still up over 30% since October 2023 lows, driven by a combination of stronger-than-expected Q3 results and remaining takeover hopes.
• Revenue growth continues to slow down, with only 6% growth expected both for Q4-FY2024 (according to company guidance) and FY 2025 (according to analyst consensus).
• Meanwhile, private equity interest is cooling off over disagreements on a potential $13 billion deal value, which would imply a value of about $60 per share.
• Unless growth rates rebound to double digits, DocuSign is fairly valued at around $50, with a fair value range between $35 and $70.

Founded in 2003, DocuSign ( DOCU ) has become a global leader in facilitating secure and legally binding digital agreements, streamlining business processes and reducing paperwork. The company's cloud-based platform enables individuals and organizations to electronically sign, send, and manage documents, contracts, and agreements in a secure and efficient manner. DocuSign's services are widely utilized across various industries, including real estate, finance, healthcare, and legal, offering a reliable and convenient solution for businesses to digitize and automate their document workflows while ensuring compliance with legal standards.

Thesis

While DocuSign remains the uncontested leader in the eSignature segment, revenue growth continues to sequentially decline every quarter, with a new low of 6% growth expected for the fourth quarter of 2024, which ended January 31st. To justify its current valuation, DocuSign will have to prove it can reaccelerate growth to higher single digits in the future while expanding operating margins. Management intends to achieve this through a combination of accelerated international growth, new product launches, and better cost control.

Separately, DocuSign has been looking for potential buyers since December. Private equity showed interest in the eSignature company, but following disagreement over a potential deal value of $13B (or $60 per share), interest has cooled off....

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