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DocuSign Has a Massive Untapped Market Opportunity

By Brian Withers and Brian Stoffel - Updated Jun 25, 2021 at 1:49PM

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E-signatures are just the beginning of what's possible.

DocuSign (DOCU 2.03%) has been on a roll with its flagship e-signature software as businesses scrambled to adapt to remote working environments. But this e-signature specialist has much more available to customers to enhance the overall agreement process. This is a huge untapped market opportunity for the company. On a Fool Live episode recorded on May 26, Fool contributors Brian Stoffel and Brian Withers discuss the company's latest accolades for its contract lifecycle management (CLM) software and when its business beyond e-signatures could be a meaningful contributor to the top line.

Brian Withers: Next up is DocuSign, DOCU. DocuSign's earnings will be released next week on June 3, but it made an announcement that it received a leader ranking from Gartner for its contract management project. This is the second year in a row that DocuSign has been ranked as a leader. This year, it placed highest among 15 vendors related on the "ability to execute axis" and it ranked highly on the "completeness of vision" axis.

Why does this matter? E-signature is really just the ticket to entry for this tech subscription company. Once customers are in doing this e-signature thing, they're looking to see what other benefits this software can bring. The market for this cloud opportunity beyond e-signature is just as big as the e-signature market. The software that it has enables companies to do more with their contracts. Think about how contracts are handled today. Almost any department can sign a contract, whether it's for their property maintenance or for legal services or development services, or even freelancers like me. These end up getting shared all over the company in shared drives, Word docs, PDF files, maybe even paper storage. There's really not a good way to search for common terms, look at risks, and do automated reminders, and things like that.

What's exciting for the company and investors is that it really hasn't reported any revenue beyond the e-signature market. Let me just show you just a pictorial on how big that is. Here is their market today.

Stacked bar chart of DocuSign's total addressable market. E-signature is $26 billion, with agreement cloud, platform, and other sign offerings making up an additional $24 billion to total $50 billion.

Docusign's total addressable market. Image source: Docusign's investor day presentation from March 2021.

The e-signature market is $26 billion. This is essentially annual revenue that is there for an opportunity. Notary and identification services, $4 billion. This broader Cloud agreement, $17 billion, and then, just the contracts platform overall is $3 billion. These three on the bottom, they've not released any progress against these, partly because this e-signature business has been growing so fast for them. This company has got a ton of opportunity ahead of itself.

Brian Stoffel: My question, Brian, about that is when are we going to start to see some traction? We saw CLM, which is Contract Lifetime Management, or the bigger idea that they have here is the agreement Cloud. I'm a DocuSign shareholder myself. The thesis is less built-on e-signatures, which are great. Don't get me wrong, but this agreement Cloud. When do you expect to see some traction from that?

Withers: Yeah. CLM stands for Contract Lifecycle Management.

Stoffel: Lifecycle. That's what it was.

Withers: Essentially from the idea phase of a contract, creating it, getting it signed, storing it, managing it, and executing it, making sure all parties are doing their part of the contract. The question is, when will this start to be material and when will we hear updates from the company?

I'm not really sure. With e-signature growth being the primary focus coming into the coronavirus, that has overshadowed growth for the CLM business. In a recent quarter, CEO Daniel Springer said, "Our view coming out of fiscal year '21, particularly out of Q4." This was a couple of months ago. "We're seeing that to build the pipeline of growth again. We're quite optimistic we're going to see that reacceleration we saw a little over a year ago." What they're seeing from their largest customers is, "Hang on. Let me just get e-signature in place." We've got a crisis as people broke out remotely and we didn't expect that." Then, I think as people come back into the office and they've [DocuSign] had another year to improve this software. I'd watch for customer wins discussed in the earning call and any breakouts they do with revenue overtime.

Stoffel: Thanks. That makes sense to me because if you didn't have an agreement cloud in place before the pandemic, that's not the time to adopt it. You've got other things to worry about. Yeah, that makes sense to me. That's what I'll be hoping for.

Brian Stoffel owns shares of DocuSign. Brian Withers owns shares of DocuSign. The Motley Fool owns shares of and recommends DocuSign. The Motley Fool has a disclosure policy.

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