DocuSign (DOCU -3.50%) stock has been on something of a rollercoaster ride over the past week. The company reported better-than-expected second-quarter financial results late last week that sent shares surging, but the rally was short-lived.
The electronic-signature specialist slumped as much as 9.9% this week, though shares were down roughly 9.3% when the market closed on Thursday.
While DocuSign's financial results beat expectations, shareholders are likely still concerned about the deceleration of its growth. Even though the company dominates the digital-signature space with an estimated 70% market share, DocuSign is still mistakenly seen by some as a "pandemic" play.
That label is causing investors to miss the forest for the trees, and digging a little deeper, the results were better than the headline numbers suggest. DocuSign's revenue of $511.8 million grew 50% year over year. While that's down from 58% growth in the first quarter, it accelerated from 45% growth in the prior-year quarter -- during the pandemic.
Subscription revenue grew even faster, up 52% year over year, building a solid foundation of recurring revenue that will continue for years. Other metrics were equally compelling. DocuSign's gross profit margin expanded from 74% to 78%, a sign that leverage is pushing more profit to the bottom line. This helped reduce its per-share loss by 63%, compared to the prior-year quarter, as DocuSign edges close to profitability. Finally, free cash flow -- which can act as a surrogate measure for profits -- surged 62% to nearly $162 million.
Enterprises are all about saving money, and technology providers like DocuSign give them a seamless way to save. Once businesses have experienced the productivity increases that come with the company's electronically signed documents and contract lifecycle-management tools, there's simply no going back.
DocuSign's recent stock-price decline has all the markings of a long-term buying opportunity.