DocuSign (DOCU -0.17%), the world's top provider of e-signature services, went public in April 2018 at $38 per share. Its shares eventually soared to an all-time high of $310.05 on Sept. 3, 2021, which boosted its market cap to $61 billion.
But today, DocuSign's stock trades at about $59, with a market cap of $12 billion. The bulls retreated as the company's growth slowed and rising interest rates compressed its valuation. The abrupt departure of CEO Dan Springer in June 2022 raised even more red flags.
DocuSign certainly disappointed a lot of its investors over the past six years, but could it expand and evolve into a trillion-dollar company by 2040? Let's review its valuation and long-term challenges to decide.
Image source: Getty Images.
Why did the bulls give up on DocuSign?
When DocuSign went public, many investors were impressed by its growth rates. Company revenue rose 52% in fiscal 2017 (which ended in January 2017) and 36% in fiscal 2018.
From fiscal 2019 to fiscal 2022, its billings climbed at a compound annual growth rate (CAGR) of 43% as its revenue increased at a CAGR of 44%. Its expansion accelerated significantly in fiscal 2021 after the pandemic drove more companies to rely on digital contracts and e-signatures. Unfortunately, its growth sputtered out over the past two years:
|
Metric |
FY 2019 |
FY 2020 |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
|---|---|---|---|---|---|---|
|
Billings growth |
34% |
38% |
56% |
37% |
13% |
9% |
|
Revenue growth |
35% |
39% |
49% |
45% |
19% |
10% |
Data source: DocuSign.
DocuSign mostly blamed that slowdown on macro headwinds, which drove many companies to rein in their spending and throttle their digital transformations. However, it also faces stiff competition from Adobe, Dropbox, and other diversified tech companies that provide their own e-signature services.
For fiscal 2025, DocuSign expects its billings to grow 2% to 4% as its revenue rises 4% to 5%. From fiscal 2024 to fiscal 2027, analysts predict its revenue will climb at a CAGR of 6%. That tepid outlook suggests it's saturating its core market.
DocuSign's new CEO, Allan Thygesen, believes the company can widen its moat by rolling out new artificial intelligence (AI) features, digital contract tools, and tighter integrations with Microsoft Teams, Zoom, and Salesforce's Slack. Thygesen also wants DocuSign to expand into more overseas markets.
But at the same time, the CEO wants to DocuSign to cut costs to boost profits. The company expects its adjusted gross margin to stay in the low-80s percentage range as it expands its adjusted operating margin from 26% in fiscal 2024 to between 26.5% and 28% in fiscal 2025.
DocuSign also turned profitable on a generally accepted accounting principles (GAAP) basis in fiscal 2024, and analysts expect its GAAP EPS to grow at a CAGR of 56% from fiscal 2024 to fiscal 2027. That long-term earnings outlook is promising, but DocuSign could also erode its own defenses if it prioritizes its near-term margins over its long-term expansion.
How much could DocuSign be worth in 2040?
DocuSign's stock doesn't seem expensive at 4 times this year's sales and 18 times its forward adjusted earnings, but it could struggle to command a higher valuation if it continues generating mid-single-digit billings and revenue growth.
On the bright side, the global e-signature services market could still expand at a CAGR of 36.4% from 2023 to 2028, according to Markets and Markets. If DocuSign continues to control about 70% of that growing market, its revenue could accelerate again as the macroeconomic environment improves.
If DocuSign is optimistically expected to boost its top line at a stable CAGR of 15% from fiscal 2024 to fiscal 2040, its annual revenue would rise from $2.8 billion to $28 billion. Assuming its valuations hold steady, its market cap would also grow tenfold to $120 billion, but it would still be a tiny fish compared to the market's trillion-dollar tech giants.
Yet that's really a best-case scenario that assumes DocuSign can overcome all of its macro and competitive challenges. I personally believe DocuSign's revenue growth could stay stuck in the single digits for at least a few more years as it struggles to gain new customers. Either way, I don't see a viable path for DocuSign to join the elite four-comma club by 2040.
