DocuSign (DOCU -0.26%) became a hot growth stock during the pandemic as stay-at-home measures generated robust demand for its e-signature services. The health crisis also prompted more companies to go paperless and accelerate their digital transformation efforts.
DocuSign's revenue rose 39% in fiscal 2020 (which ended in January of the calendar year), 49% in fiscal 2021, and 45% to $2.1 billion in fiscal 2022. Those growth rates impressed the bulls, and its stock soared to a record high of $310.05 last September -- more than four times higher than its opening price of $74.31 on the first trading day of 2020.
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But over the past year, DocuSign disappointed those investors with its cooling growth in a post-pandemic market. That slowdown was exacerbated by the impact of inflation, rising interest rates, and other macro headwinds on enterprise spending, while the abrupt resignation of CEO Dan Springer in June raised additional red flags.
DocuSign now expects its revenue to rise just 18% this year, which would represent its slowest annual growth since its IPO four years ago. That's why its stock tumbled back to the low $50s. But could DocuSign's stock recover in 2023 as it finally moves past those issues? Let's review one green flag -- and one red flag -- to find out.
The green flag: A new CEO takes the helm
Allan Thygesen, who previously led Google's North and South American advertising businesses at Alphabet (GOOG 9.96%) (GOOGL 10.22%), was selected as DocuSign's new CEO in late September. A few days after that decision, the company announced it would reduce the size of its current workforce by about 9% in a restructuring effort that would be completed by the end of fiscal 2023.
Thygesen took the helm on Oct. 10, but we still don't know much about his turnaround plans for the company. In a statement, Thygesen said DocuSign still had a "$50 billion global market opportunity that is largely untapped" and would "capture that opportunity" by growing its "diversified customer base across industries and geographies."
That statement is vague, but Thygesen might find some fresh ways to revive DocuSign's top-line growth, boost its dollar net retention rate (which slipped below its "historic range" of 112%-119% to just 110% in its latest quarter), and stabilize its margins with tougher cost-cutting measures. Thygesen also might drive DocuSign toward making more strategic acquisitions to expand its subscription-based DocuSign Agreement Cloud, which houses its e-signature services, contract lifecycle management services, and other integrations with third-party apps. That expansion could potentially widen DocuSign's moat against competitors like Adobe's (ADBE 0.87%) Sign and Dropbox's (DBX 0.92%) HelloSign.
The red flag: A lack of insider confidence
With an enterprise value of $9 billion, DocuSign looks historically cheap at just three times next year's sales. But over the past three months, its insiders haven't purchased a single share of the stock. They also sold nearly four times as many shares as they bought over the past 12 months. A large portion of those purchases can be directly attributed to its former CEO Dan Springer, who made several large purchases as the stock collapsed.
That glaring lack of insider confidence raises troubling questions about DocuSign's turnaround potential in 2023. Its revenue growth is still cooling off, its net losses are widening on a GAAP (generally accepted accounting principles) basis, and those losses will likely widen in the second half of fiscal 2023 as it incurs an estimated $30-$40 million in charges related to its aforementioned restructuring plans.
Moreover, numerous competitors are still creeping into its backyard, and its business is heavily exposed to macro headwinds. It's also burdened with a high debt-to-equity ratio of 5.6, which will make it tough to secure fresh funds at favorable rates in this market. All those weaknesses suggest that DocuSign's insiders will likely remain net sellers next year.
Will DocuSign's stock bounce back in 2023?
DocuSign's business isn't headed off a cliff, but it's too early to bet on its potential stabilization and recovery. Bringing in an experienced Google executive as its new CEO is a step in the right direction, but we won't gain any deeper insights into his plans until its third-quarter earnings report. Meanwhile, its ongoing insider sales suggest that DocuSign's own employees aren't confident in a turnaround yet -- so investors shouldn't expect this stock to replicate its pandemic-era gains in 2023.
