DocuSign, Inc. (DOCU), the e-signature company, reported its fiscal first-quarter results on June 6, exhibiting a ‘strong start’ in fiscal 2025. Allan Thygesen, DOCU’s CEO, said, “In Q1, we continued to stabilize the business and improve profitability, allowing Docusign to continue investing for long term growth.”

In the three-month period that ended April 30, 2024, DOCU reported total revenue of $709.64 million, up 7.3% year-over-year and slightly above the analyst’s estimate of $707.44 million. Its subscription revenue increased by 8.2% year-over-year to $691.48 million. Non-GAAP billings grew 5% from the year-ago value to $709.54 million.

Further, the company’s gross profit rose 6.7% from the year-ago value to $560.19 million, while its non-GAAP income from operations improved by 14.9% year-over-year to $202.09 million. DOCU’s non-GAAP net income amounted to $172.84 million and $0.82 per share, reflecting an increase of 15.1% and 13.9%, respectively, from the same quarter last year.

Also, its non-GAAP free cash flow stood at $232.07 million, up 8.2% year-over-year. Additionally, its cash and cash equivalents increased to $817.39 million as of April 30, 2024, compared to $797.06 million as of January 31, 2024.

Moreover, the company steadily surpassed Wall Street’s EPS and revenue estimates. For the first quarter, DOCU’s earnings per share was 3.7% above the consensus estimate, and its revenue was marginally higher than the analysts’ estimates. It is no surprise that DOCU’s strong earnings have topped the EPS estimates in each of the past consecutive four quarters.

Buoyed by its solid first-quarter performance, DOCU anticipates total revenue to range between $725 million and $729 million, in the second quarter ending July 31, 2024. Its subscription revenues are expected to be between $705 million and $709 million, while its billings are forecasted to fall in the range of $715 million to $725 million. Also, its non-GAAP operating margin is projected to be 27%-28%.

For the full year, DOCU anticipates total revenue to fall between $2.92 billion and $2.93 billion, while its subscription revenue is expected to be $2.84 billion to $2.86 billion. Further, DocuSign expects its billings to fall from $2.98 billion to $3.03 billion, and non-GAAP operating margin is expected to be 26.5%-28%.

Moreover, on June 6, DOCU’s Board of Directors authorized an increase in the existing stock repurchase program by an additional amount of up to $1 billion of its outstanding common stock through open market purchases and other transactions. This strategic move implies the company’s confidence in its financial stability and long-term growth prospects, as well as its commitment to returning value to shareholders.

Speaking of returns, the e-signature provider’s shares have gained 9.7% over the past six months to close the last trading session at $52.05.

Now, let’s look at factors that could influence DOCU’s performance in the upcoming months:

Positive Developments

On May 31, 2024, the company acquired Lexion, a leader in AI-based agreement technology with solutions designed to automate workflows and extract vital information from contracts. This move strengthens DOCU’s position in Intelligent Agreement Management (IAM) and introduces additional AI-driven capabilities to the Docusign IAM platform.

Further, the acquisition is expected to provide customers with deeper insights and analysis, enabling them to accelerate contract reviews and negotiations, easily locate information within documents, and automate processes.

On April 11, DOCU revealed a significant expansion of its corporate strategy by introducing a new Software as a Service (SaaS) category: Intelligent Agreement Management (IAM). Alongside this announcement came the introduction of Docusign IAM, an Intelligent Agreement Management platform and suite of applications positioned to spearhead this emerging category.

Docusign IAM aims to empower businesses of all types to convert agreement data into actionable insights, expedite contract review processes, and enhance overall productivity throughout the organization. Its offerings encompass Docusign Maestro, Docusign Navigator, Docusign App Center, and IAM application suites.

Following the conclusion of the first quarter, the company disclosed in late May the widespread availability of IAM for an initial group of customers, with subsequent rollout planned across various customer segments and global markets.

Favorable Analyst Estimates

The consensus revenue estimate of $726.69 million for the fiscal second quarter (ending July 2024) represents a 5.7% increase year-over-year. The consensus EPS estimate of $0.80 for the current quarter indicates an 11.1% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.

For the fiscal year ending January 2025, the company’s EPS is anticipated to grow 8.8% year-over-year to $3.24, while its revenue is expected to increase 5.9% from the prior year period to $2.93 billion.

In addition, Street expects its revenue and EPS for the fiscal year 2026 to grow 6.4% and 7.7% from the same period last year to $3.11 billion and $3.49, respectively.

Sound Historical Growth

DOCU’s revenue has increased at CAGRs of 23.9% and 31.6% over the past three and five years, respectively.

Over the past three years, its levered FCF improved at a CAGR of 27.3%. Moreover, the company’s total assets grew at an 8.3% CAGR over the same time frame.

Lower-Than-Industry Valuation

In terms of forward non-GAAP P/E, DOCU is currently trading at 16.52x, 30.7% lower than the industry average of 23.85x. Similarly, the stock’s forward non-GAAP PEG and EV/EBITDA multiples of 1.04 and 11.02 are 48.3% and 25.9% lower than the industry averages of 2.01x and 14.87x, respectively.

Additionally, the stock’s 12.48x forward EV/EBIT is 40.1% lower than the industry average of 20.81x.

High Profitability

DOCU’s trailing-12-month gross profit margin of 80.40% is 62.2% higher than the 49.58% industry average. Its trailing-12-month ROCE of 8.47% is 112.4% higher than the industry average of 3.99%. Likewise, the stock’s 2.49% trailing-12-month ROTA is 59.4% above the industry average of 1.56%.

Furthermore, the stock’s trailing-12-month levered FCF margin of 40.32% compares to the 10.08% industry average.

POWR Ratings Reflect Promise

DOCU’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 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 boasts an A grade for Growth, consistent with its solid financial performance in the last reported quarter. Additionally, its B grade for Value and Quality is in sync with its lower-than-industry valuation and robust profitability.

The stock is ranked #2 out of 18 stocks in the A-rated Software – SAAS industry. Click here to access DOCU’s Momentum, Stability, and Sentiment ratings.

Bottom Line

DOCU’s revenue and EPS surpassed fiscal 2025 first-quarter analyst expectations. The company ended the quarter with $817.39 million in cash and cash equivalents and a free cash flow of $232.07 million, indicating a solid liquidity position and providing the financial flexibility to invest in growth opportunities and pursue strategic initiatives.

Given robust financials, growing profitability, and a bright long-term growth outlook, it could be wise to invest in this stock.

How Does DocuSign, Inc. (DOCU) Stack Up Against Its Peers?

While DOCU has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Software – SAAS industry: WM Technology, Inc. (MAPS), Vimeo, Inc. (VMEO), and The Sage Group plc (SGPYY), carrying A (Strong Buy) or B (Buy) ratings. For exploring more Software – SAAS stocks, click here.

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DOCU shares closed at $52.05 on Friday, down $-2.55 (-4.67%). Year-to-date, DOCU has declined -12.45%, versus a 12.70% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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