What happened
Shares of e-signature leader DocuSign (DOCU -0.26%) were rising today, up as much as 6%, before reverting to a 1.6% gain at 3:47 p.m. EDT, as the Nasdaq Composite (^IXIC 2.02%) fell into deep negative territory. Unfortunately, DocuSign's outperformance was not for the best of reasons, as the company announced its second round of layoffs within five months.
That could suggest business and revenue may still be slower than expected; however, it could also very well be the positive signal the market is taking it to be.
That's because the initial round of layoffs last September came just after its new CEO, Allan Thygesen, was officially hired. Therefore, this latest round of cuts, which is occurring all across the tech space, could be seen as a continuation of Thygesen's scrutiny of DocuSign's bloated cost structure and not merely a reaction to soft revenue.
So what
In today's filing, DocuSign announced a new restructuring plan that will see the company cut another 10% of its workforce. As a result, DocuSign plans to take an additional $25 million to $35 million in restructuring charges. The plan will occur mostly in the first quarter of fiscal 2024, which began in February, and would be substantially complete by the end of the second quarter of the fiscal year.
In a statement, the company said:
The restructuring mainly impacts our worldwide field organization... This action allows us to reshape the company to more effectively position us for profitable growth, while freeing up resources for investments. We remain confident in the long-term strength of our team and our business.
The restructuring is the second in recent months, following the company's late-September announcement that it would be cutting 9% of its workforce. That announcement, in turn, came just days after the company announced the appointment of former Alphabet executive Allan Thygesen as CEO. Thygesen was formerly President of Americas & Global Partners at Google, as well as a former executive at private equity firm The Carlyle Group.
That experience at The Carlyle Group looks pretty appealing here, as private-equity firms are investors that are generally highly aware of profitability and what drives shareholder returns. Furthermore, Thygesen's stock-based incentives are very generous, but only kick in if DocuSign's total shareholder return targets are met, with varying tranches and targets going up to a 483% total shareholder return from the 30-day average price before Thygesen took the job over seven years. DocuSign's price at around the time Thygesen was hired was about $55, so he has only achieved a modest gain to date.
Now what
Many have thrown in the towel on DocuSign as a pandemic beneficiary that will inevitably revert to much slower growth and underwhelming profitability. Yet while growth may be challenged in the near term, as the company definitely had a demand pull-in during the pandemic, there is still the possibility of further cost cuts and efficiency measures under its new CEO.
There is also the possibility that growth may turn out not to be so bad. DocuSign reported a not-terrible 17% billings growth last quarter, and also guided for about 10% sequential billings growth for its fourth quarter ending in January, for which it will report in March. Trading at just over 5 times trailing sales, which is not demanding for the SaaS industry, and with a renewed focus on bringing the company to profitability sooner rather than later, it's a turnaround stock to watch this year.
