What happened
Shares of DocuSign (DOCU 0.25%) plunged by 38.2% in December, according to data provided by S&P Global Market Intelligence.
The sharp decline brings the shares of the electronic signature company down by 31.5% for 2021.
Image source: Getty Images.
So what
DocuSign released a set of sparkling results for its fiscal 2021 third quarter. Total revenue grew by 42% year over year to $545.5 million, while billings increased by 28% year over year to $565.2 million. Gross margin improved to 79% for the quarter compared to 74% in the prior quarter, while free cash flow more than doubled from $38.1 million to $90 million.
Despite the strong numbers, investors were more focused on the company's fourth-quarter guidance. DocuSign projected that total revenue would be in the range of $557 million to $563 million, for a year-over-year growth of around 30%. Billings were also projected to grow by 22.1% year over year to $653 million. Though these numbers still represented good growth, they fell short of expectations, and the stock was thus sold down.
Now what
CEO Dan Springer acknowledged on the company's recent earnings call that DocuSign's growth over the past 18 months was fueled by the surge in online activity caused by the pandemic. This boost allowed the company to capture business at a rapid pace as customer demand for electronic signatures exploded. However, as vaccines were rolled out worldwide and the pandemic eased, demand slowed in tandem, leading to a marked decline in DocuSign's growth rates.
He plans to counter this slowdown by increasing investment in the company's global sales effort to accelerate business capture and tap on the "land and expand" strategy to enable existing customers to spend more. Marketing spending will also be increased to improve brand awareness both domestically and in international markets.
To be sure, DocuSign is still displaying strong operational numbers. Total customer count has exceeded one million during the quarter, up nearly three times since fiscal 2018. During the same period, enterprise customers have nearly quadrupled. Customers with an annual contract value above $300,000 have grown to 785, up 45% per annum since fiscal 2013. These numbers are a testament to DocuSign's steady growth that seems set to continue once it gets past this slowdown.
Investors may have to wait a few more quarters for the company's growth engine to restart, but with an entrenched position within the electronic signature market and the introduction of new products and services, DocuSign looks set to do well in the long run.
