Please ensure Javascript is enabled for purposes of website accessibility

How Coronavirus Is Accelerating DocuSign's Growth

By Brent Nyitray, CFA – Jun 10, 2020 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Digital signatures and remote work are here to stay.

For most companies, the COVID-19 crisis has been a challenge to be endured. The crisis has also acted as a catalyst to push some changes in business practices that were already in place. Digital signatures and remote work are two of these. DocuSign (DOCU -3.13%) recently reported its first-quarter earnings (as of April 30, 2020), and gave an update on its business. The main story from the earnings release is that COVID has encouraged companies to adopt DocuSign's products and services.

Computer keyboard with key that says Digital Signature

Image source: Getty Images.

First-quarter earnings are strong

First-quarter results were strong, as revenues increased 39% to $297 million and billings rose 59% to $342 million. eSignature was the main driver for the increase, and is usually the customer's first introduction to the company's offerings. The company views eSignature adoption as sort of a leading indicator for future revenues. The company added nearly 68,000 new customers, bringing its count to almost 661,000. 

COVID-19 accelerated some trends already in place

The COVID-19 crisis forced many companies to accelerate their adoption of digital signatures and cloud-based agreement management. During the quarter the company added some important new clients, such as a state Department of Labor to help distribute emergency unemployment benefits and several large banks to help distribute Small Business Administration loans. The adoption of digital signatures has been fairly broad across industries as well, including financial services, healthcare, and life sciences. On the company's earnings call, DocuSign CEO Dan Springer discussed some of the ways the COVID crisis has been a catalyst for the company:

Let me speak briefly about where we see things going from here. While no one is 100% sure what the world will look like, it's clear that the ways of doing business are changing. Remote work is here to stay. Core business processes will only become more digital and agreements will need to be completed from anywhere, at any time on almost any device.

As a result, for organizations that hadn't already embraced DocuSign for eSignature, that were only using us for a few select use cases, the pandemic has been a catalyst for the greater digital transformation of their end-to-end agreement processes. We always believed this transformation will happen and that a unifying platform for agreements will be needed. COVID-19 is just happening faster.

Even when the crisis ends, many of the changes that occurred during it are here to stay. It is highly unlikely that companies will return to manual paper-based agreement systems, and remote work will probably be a larger component of working from now on. The ability to sign agreements anywhere, on any device, is now a requirement for many companies.

DocuSign envisions that the adoption of eSignature will drive adoption of Agreement Cloud, which is a cloud-based system for managing a company's legal documents. Another future area of growth will be the Seal Software acquisition, which closed on May 1. Seal Software is an artificial intelligence system that can analyze legal documents, and it promises to be a potent way for companies to reduce their legal expenses. While Seal is expected to have a de minimus effect on earnings this year, it will drive earnings down the road. 

The stock has been a stellar performer year to date

DocuSign was one of the few companies issuing guidance in the midst of the crisis. The company forecast that fiscal year 2020 revenues would come in around $1.315 billion, which would represent 34% top-line growth. The company didn't directly give earnings per share guidance, but The Street expects DocuSign to earn $0.49 in 2020 compared to $0.31 in 2019, which represents 58% EPS growth.

The stock has been on a tear this year, up 88% from Dec. 31, and most of the growth occurred after the COVID crisis began. DocuSign is not cheap at over 200 times expected 2020 earnings, but it has a powerful niche, and really only one large competitor, which is Adobe. That said, remote work and digital signatures are here to stay, and the COVID-19 crisis proved just how necessary these things are. 

Brent Nyitray, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends DocuSign. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

DocuSign Stock Quote
DocuSign
DOCU
$53.47 (-3.13%) $-1.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.