DocuSign, Inc. (DOCU), a global electronic signature solution provider, beat analyst estimates for revenue and earnings in the first quarter of fiscal 2024. The company reported first-quarter revenue of $661.39 million, above the consensus estimate of $641 million. It posted an adjusted EPS of $0.72, compared to the $0.56 expected by analysts.

“DocuSign’s first quarter results, coupled with traction on our strategic objectives reflect a solid start to the year,” said Allan Thygesen, DOCU’s CEO. “While we have work ahead of us, I am encouraged by our progress to enable smarter, easier, trusted agreements. As we continue to execute on our strategy and leverage our competitive advantages, notably in AI, DocuSign is well positioned for the future.”

On July 25, DOCU launched its enhanced identity verification offering, Liveness Detection for ID Verification. Part of the company’s Identify portfolio, this new feature employs AI-enabled biometric checks to confirm signers’ identity, physical presence during signing, and the validity of their IDs.

Developed in partnership with Onfido, a global leader in automated identity verification, this feature is tightly integrated with DocuSign’s eSignature workflow, eliminating the need for users to use multiple platforms to complete secure agreements. DOCU intends to infuse its entire product suite with AI to offer customers frictionless experiences that are smarter and more trusted.

DOCU, which is set to release its second quarter fiscal 2024 results on Thursday, September 7, 2023, after the market’s closing, expects total revenue to be between $675 to $679 million for the quarter that ended July 31, 2023. Also, the company’s non-GAAP gross margin and non-GAAP operating margin are expected to be 81-82% and 24-25%, respectively.

For the fiscal year ending January 31, 2024, DOCU currently expects total revenue to arrive between $2.71 to $2.73 billion, while it projects its non-GAAP gross margin and non-GAAP operating margin to be between 81% to 82% and 22% to 24%, respectively.

Shares of DOCU have gained 2% over the past month and 23.2% over the past nine months to close its last trading session at $52.27.

Let’s look at factors that could influence DOCU’s performance in the upcoming months.

Robust Financials

For the first quarter that ended April 30, 2023, DOCU’s total revenues increased 12.3% year-over-year to $661.39 million, and its Subscription revenue came in at $639.31 million, up 12.3% year-over-year. Its gross profit rose 15% from the year-ago value to $524.90 million. Its non-GAAP income from operations grew 72% year-over-year to $175.77 million.

Additionally, the company’s non-GAAP net income increased 94% from the prior-year quarter to $150.21 million, while its non-GAAP EPS came in at $0.72, an increase of 89.5% year-over-year. Also, as of April 30, 2023, DOCU’s cash and cash equivalents stood at $940.49 million, compared to $721.90 million as of January 31, 2023.

Solid Historical Growth

DOCU’s revenue grew at a CAGR of 34.8% over the past three years. Its total assets increased at a CAGR of 17.7% over the same period. In addition, the company’s levered free cash flow grew at a CAGR of 51.3% over the same time frame.

Favorable Analyst Estimates

Analysts expect DOCU’s revenue for the second quarter (ended July 2023) to come in at $677.42 million, indicating an increase of 8.9% year-over-year. The consensus EPS estimate of $0.66 for the to-be-reported quarter reflects a 49.2% year-over-year improvement. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

In addition, analysts expect DOCU’s revenue and EPS for the current fiscal year (ending January 2024) to increase 8.2% and 26% from the previous year to $2.72 billion and $2.56, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 7% and 4.9% year-over-year to $2.91 billion and $2.68, respectively.

High Profitability

DOCU’s trailing-12-month gross profit margin of 79.27% is 65.5% higher than the 47.89% industry average. Its trailing-12-month levered FCF margin of 30.55% is 332.8% higher than the 7.06% industry average. Likewise, the stock’s trailing-12-month CAPEX/Sales of 2.90% is 19.59% higher than the industry average of 2.42%.

Furthermore, the stock’s trailing-12-month asset turnover of 0.91x is 47.2% higher than the industry average of 0.62x.

POWR Ratings Reflect Promise

DOCU’s solid 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 an A grade for Growth, in sync with its solid financial performance and optimistic analyst estimates. The stock also has a B grade for Quality, consistent with its higher-than-industry profitability.

DOCU is ranked #4 in the 24-stock Software – SAAS industry.

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

Bottom Line

DOCU surpassed consensus revenue and earnings estimates for the last reported quarter. Further, analysts are bullish about the company’s growth prospects. DocuSign is well-placed to benefit from continued demand for its main product, eSignature.

The company has been formulating several growth strategies for acquiring customers, increasing eSignature use cases to existing customers, improving its offerings by infusing AI and other technologies, and expanding internationally. Also, DOCU’s strategic partnerships with Salesforce.com Inc. (CRM) and Microsoft Corp. (MSFT) are significant tailwinds for the company.

Given DOCU’s strong financials, robust profitability, and promising growth outlook, this stock could be an ideal buy before its upcoming earnings release.

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: Vimeo Inc. (VMEO), MiX Telematics Ltd. (MIXT), and Informatica Inc. (INFA). For exploring more A and B-rated software stocks, click here.

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DOCU shares rose $0.07 (+0.13%) in premarket trading Wednesday. Year-to-date, DOCU has declined -5.68%, versus a 18.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

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. More...

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