DocuSign (DOCU -0.26%) was a prime beneficiary of the +coronavirus pandemic. The company that electronically facilitates contract agreements seemed ready-built for a pandemic. Businesses looking to sign agreements without bringing people together were excited to use DocSign's electronic signing services.
Now, as economies are reopening and folks are cautiously returning to pre-pandemic behavior, the reversal of the stay-at-home trend could be a red flag for DocuSign in 2022.
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Red flag: economic reopening
Already, economic reopening is negatively impacting customer billings. Customers like organizations and institutions typically sign up for DocuSign through a subscription. Billings, which captures the change in new subscription sales, has decelerated for four quarters. The fall coincides with the economic reopening, indicating slowing customer adoption.
Similarly, revenue growth is slowing. In the fourth quarter ended Jan. 31, DocuSign's revenue grew by 45% year over year. That was down from a 51% revenue growth rate in the previous quarter and 54% two quarters ago. To make matters worse, one of the last parts of our lives to return to the way it was before the outbreak is office work. Several corporations and institutions have yet to call workers back to the office. The return to the office is likely to gain momentum as the world progresses in its battle against COVID-19. The trend will undoubtedly be a headwind for DocuSign in 2022.
Green flag: reducing waste (time and paper)
DocuSign has gained notoriety as a pandemic-era favorite. However, the company was growing revenue rapidly even before the outbreak. From 2016 to 2019, DocuSign increased yearly revenue from $250 million to $701 million. Fueling that growth was the valuable solution it offers organizations worldwide; DocuSign's services are a more efficient way to get agreements signed.
Consider the alternatives. Signing an agreement without DocuSign could mean bringing two parties together in person to put pen to paper. Another option could entail one party mailing the document(s) to another for signature and return, which could take days, if not weeks depending on geography. And, of course, documents can be emailed, printed, signed, scanned, and emailed back -- admittedly a relatively fast process, but an inconvenient one, especially for more extensive documents.
What all of these alternatives have in common is a lot of paper usage. Even if you do not care for the planet's health, you can appreciate the business benefits of using less paper; storing agreements on paper requires physical space that costs money and human resources. That said, the benefits to the planet should not be underestimated. DocuSign's services have helped save over 55 billion sheets of paper and six million trees so far. Considering that individuals are placing higher importance on an investment's impact on the planet, this positive feature of DocuSign could help shareholder returns in the long run.
DocuSign CEO Dan Springer said it best in its most recent conference call: "As the pandemic subsides and people begin to return to the office, they are not returning to paper." The move away from paper could be a green flag for DocuSign in 2022 and beyond.
Interestingly, the red flag for DocuSign is temporary, while the green flag is long-lasting. The stock is down 66% off its high and is selling at an inexpensive price-to-free cash flow ratio of 46, its lowest ratio in the last five years. This could be an excellent time for investors to consider adding DocuSign to their portfolios.
