What happened
DocuSign (DOCU -1.76%) 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.
So what
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.
Now what
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.