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Why DocuSign's Stock Jumped 26% in July

By Royston Yang – Aug 6, 2020 at 1:53PM

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The digital signature company is demonstrating strong growth in billings and revenue as the pandemic leads to quicker adoption of digitalization.

What happened

Shares of DocuSign (DOCU 1.11%) jumped 26% in July, according to data provided by S&P Global Market Intelligence.

The electronic signature company's share price has nearly tripled year to date and has been breaking new all-time highs at the same time.

Person using a pen to sign on a tablet computer.

Image source: Getty Images.

So what

DocuSign has been growing steadily over the years with its core product Agreement Cloud, but the pandemic has led to an acceleration in the pace of digitalization. For the first quarter of the fiscal year 2021 (ended April 30, 2020), subscription revenue continued to expand, rising 39% year over year to $297 million. Billings rose by a higher magnitude, up 59% year over year to $342 million, while total customers grew by 30% year over year to 661,000. 

Despite the impressive numbers, DocuSign continues to report a loss as it spends on sales and marketing, and invests in research and development for its platform. That said, investors are feeling confident that the company can continue to expand its customer base, thereby bringing in higher levels of recurring revenue. With all the uncertainty surrounding the coronavirus, investors will naturally flock to safe havens. Software-as-a-service companies, such as DocuSign, have sticky customers and provide clear visibility on revenues.

In early July, the company announced the acquisition of Liveoak Technologies for $38 million in an all-stock transaction. Liveoak uses web-based video-conferencing and other tools to help complete an auditable transaction remotely, and DocuSign plans to leverage on Liveoak's technology and expertise to launch DocuSign Notary, a new product within its Agreement Cloud that focuses on remote, online notarization. 

Now what

DocuSign's growth is set to gain more traction with more businesses going down the digitalization path. The pandemic has been a boon for the company as it pushes businesses to adopt online methods of carrying out transactions and signing documents in place of face-to-face meetings.

With DocuSign's purchase of Liveoak, the company can now offer a broader suite of services to further capture market share. The global digital signature market is poised to grow at a compound annual growth rate of 28.6% between 2020 and 2030 to reach $24 billion, providing a long runway for growth for DocuSign. 

Royston Yang 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.

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