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Why DocuSign Stock Skyrocketed 200% in 2020

By Keith Noonan - Jan 9, 2021 at 11:37AM

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The software company offered the right services at the right time.

What happened

Shares of DocuSign ( DOCU 6.51% ) tripled last year, according to data from S&P Global Market Intelligence. The e-signature specialist's stock price soared thanks to rapid customer growth and increased engagement from existing clients.

DOCU Chart

DOCU data by YCharts

While many industries faced extraordinary pressures from the coronavirus pandemic, the unprecedented conditions wound up creating tailwinds for the cloud software industry -- including DocuSign. Stellar stock gains in 2020 came on the heels of an 85% increase for the company's share price in 2019, and the company's stock is now up roughly 515% from market close on the day of its initial public offering (IPO) in 2018.   

A person using a laptop.

Image source: Getty Images.

So what

With businesses moving to digital channels in response to the pandemic, DocuSign saw increased demand for its services and repeatedly crushed the market's expectations. The company delivered a string of strong earnings reports last year. Most of DocuSign's stock gains occurred in the first half of the year, but the third quarter results the business delivered early in December were the best of the bunch in many respects. Sales surged 53% year over year to reach $382.9 million, and third quarter billings surged 63% compared to the prior-year period to reach $440.4 million.

The software-as-a-service (Saas) company closed out its last reported quarter with a net revenue retention rate (a measure of existing customers increasing spending) of 122%, its highest ever. The company has also reported having roughly 822,000 paying customers, representing growth of 46% year over year. Overall, DocuSign was well-positioned to capitalize on the accelerated digital transition, and 2020 wound up being a great year for the company. 

Now what

DocuSign stock has continued to climb higher early in 2021. The company's share price has risen roughly 10% in January's trading so far as of this writing. 

DOCU Chart

DOCU data by YCharts

DocuSign now has a market capitalization of roughly $45.6 billion and trades at roughly 32 times this year's expected sales. 

The company's sales growth will likely slow as pressures from the pandemic ease and the business world moves closer to a normal operating keel, but the e-signature specialist still has plenty of room for growth if it can retain a leadership position in its service category. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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