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Could DocuSign's E-Signature Business Be Disrupted?

By Brian Withers and Brian Feroldi - May 16, 2021 at 7:22AM

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It is doing great now, but are there storm clouds on the horizon?

DocuSign (DOCU 6.69%) has been one of the companies that have benefited from a move to remote work during the COVID-19 pandemic. Gathering signatures on paper documents wasn't just inconvenient; it became nearly impossible. This e-signature leader has grown significantly over the past year, and shareholders have benefited. On a Fool Live episode recorded on April 28, Fool contributors Brian Feroldi and Brian Withers go over the latest quarterly results and discuss whether this disrupter could be disrupted by another technology. 

Brian Feroldi: Let's talk about DocuSign. DocuSign is the leading provider of e-signature solutions, and they have expanded their business greatly since they came public into what's called the Agreement Cloud, which is a holistic view of creating documents, enforcing documents, getting signature from documents, reviewing documents, etc. It's a platform that the company has really invested big into. Last fiscal year was a phenomenal year for a lot of cloud companies, DocuSign is no exception. We saw revenue grow 49 percent to $1.5 billion, dollar-based net retention rate was 123 percent, and their global customer count grew 51 percent to 892,000. Using e-signatures went from a nice to have to the only way this is going to work now that people are working from home.

I think that once you make the jump to go into a digital signature, why on Earth would you go backwards? I myself at my old company once had to go around and get signatures from five people, the organization, it literally took me all day. It was a whole day wasted. Imagine if I could've just emailed them and said, "Review this, click here," wow, would that have been a productivity boost.

The bottom line for this company looked really good too, 90 cents in adjusted net income for the year. That was basically triple what it was the year before. For the fiscal year ahead, the company is expecting 31 percent revenue growth to just under two billion dollars and it believes that the opportunity ahead is huge, especially in international markets which is still a minority part of revenue. All systems go at DocuSign.

Brian Withers: Yeah, I remember the first time I used DocuSign, I set up what they call an envelope sent it around for signatures in the time that would have taken me to print the document, [laughs] just printing. I totally agree that once people go this way, it'll be hard to reverse course.

But my worry on DocuSign, it's more of a technical thing. Are IT team's going to figure out that they don't really need the service anymore. They're looking through their budget and saying, "Oh wow, we're spending all this money on DocuSign." With the technology today where we click stuff and it records the date and the time which we click stuff, is there a risk that companies will replace e-signature with a "Press OK to accept" technology?

Brian Feroldi: Maybe in the very long term but how have humans been making agreements for the millennium? Writing things down and signing your name. This is just another version of that for the digital age. Could there be a button that says "Push OK to accept?" Sure, good luck enforcing that in court once they say to you, "Where is the signature?" With that risk be worthwhile to save a couple of bucks on DocuSign, especially given the productivity gains of DocuSign? I doubt it.

Brian Withers: Yeah, you bring up the thing in court and I'd totally forgotten about that. They've actually been challenged in court several times and have always been upheld.

Brian Feroldi: Never lost.

Brian Withers: Yeah, super benefit for the offering.

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