DocuSign's (DOCU 0.65%) stock declined 7% during after-hours trading on March 9 after the company posted its latest earnings report. For the fourth quarter of fiscal 2023, which ended on Jan. 31, the e-signature service provider's revenue rose 14% year over year to $660 million and exceeded analysts' expectations by $20 million. Its adjusted net income grew 33% to $133 million, or $0.65 per share, and also cleared the consensus forecast by $0.13.

For the full year, DocuSign's revenue rose 19% to $2.5 billion as its adjusted net income grew 2% to $419 million. Those growth rates seemed stable, but the bulls were unimpressed and the stock remains about 80% below its all-time high from September 2021. Let's see why this growth stock lost its luster -- and if it's a good turnaround play for 2023 and beyond.

A person signs for a package.

Image source: Getty Images.

Another year of decelerating growth

DocuSign's growth in billings and revenue accelerated significantly in fiscal 2021 as the pandemic drove more people to work remotely and rely heavily on digital contracts and signatures. However, its growth decelerated over the past two years as the pandemic-induced tailwinds dissipated and fresh macroeconomic headwinds battered the enterprise sector.

Metric

FY 2023

FY 2022

FY 2021

FY 2020

FY 2019

Billings growth

13%

37%

56%

38%

34%

Revenue growth

19%

45%

49%

39%

35%

Data source: DocuSign.

DocuSign still controls about 70% of the e-signature market with 1.36 million paying customers, but it faces stiff competition from similar services like Adobe Sign, which is integrated into Acrobat; and Dropbox Sign (formerly known as HelloSign), which is embedded into its cloud-based data storage services. That competition likely exacerbated its recent slowdown.

DocuSign expects its deceleration to continue with just 0% to 1% billings growth and 8% revenue growth in fiscal 2024. During the conference call, CEO Allan Thygesen -- who took the helm last October -- attributed that slowdown to a "challenging macro environment" characterized by "cautious" customer sentiment and "moderated expansion rates."

But its margins are expanding

As DocuSign's revenue growth cools off, it's aggressively cutting costs to stabilize its margins. It already laid off 9% of its employees last year, and it plans to lay off another 10% of its remaining workers this year.

Its adjusted gross margin stayed flat year over year at 82% in 2022, which suggests it still has plenty of pricing power against its smaller competitors, while its adjusted operating margin rose from 20% to 21%.

In fiscal 2024, it expects to post an adjusted gross margin of 81% to 82% with an adjusted operating margin of 21% to 23%. Analysts expect its adjusted earnings per share to rise 12% for the full year.

DocuSign also turned profitable on a generally accepted accounting principles (GAAP) basis in the fourth quarter -- thanks to its narrower operating loss and higher interest income -- but analysts expect it to remain unprofitable (albeit with a narrower loss) in fiscal 2024.

A murky near-term outlook

DocuSign's growth won't accelerate unless the macro situation improves, and it's unclear if Thygesen's plans to expand its ecosystem with new artificial intelligence features, digital contract features, and more program integrations will move the needle. CFO Cynthia Gaylor, who has held that position for the past four years, also plans to leave the company within the next few months.

That near-term outlook seems murky, and DocuSign's stock still isn't cheap at 5 times this year's sales. Dropbox, which is growing at a similar rate, trades at 3 times this year's sales. Adobe, which is growing slightly faster than both companies, trades at 8 times this year's sales.

DocuSign isn't doomed, but its stock won't recover until its revenue growth stabilizes. For now, investors should avoid this burnt-out growth stock and stick with more balanced tech companies until the macro situation improves.