Mohit Oberoi
DocuSign (NYSE: DOCU) is trading higher in US premarkets today after it posted better-than-expected earnings for the fiscal third quarter of 2023. Here are the key takeaways from the former stay-at-home darling’s earnings report.
DocuSign reported revenues of $645.5 million in the quarter that ended in October 2022. The revenues rose 18% and were ahead of the $627 million that analysts were expecting. The company’s Subscription revenues rose 18% to $624.1 million while Professional services and other revenues rose 27% to $21.4 million.
Commenting on the earnings, DocuSign CEO Allan Thygesen, who took over the position recently only said, “We delivered solid third quarter results, and are pleased with the continued progress against our critical priorities.”
Notably, DOCU stock has whipsawed this year. It crashed after releasing its fiscal second-quarter earnings in June. Soon after, its CEO Dan Springer stepped down and in September the company appointed Thygesen as the CEO.
Markets sent DocuSign stock higher after Springer resigned and again when Thygesen, a former Google executive, was appointed as the CEO.
DocuSign Posted Better Than Expected Earnings in the Third Quarter
DocuSign reported an adjusted EPS of 57 cents in the fiscal third quarter. The metric was ahead of the 42 cents that analysts were expecting. The earnings were however a cent below what the company posted in the corresponding quarter last year.
The company’s adjusted gross profit margin was 83% in the quarter, one percentage point higher than the third quarter of the fiscal year 2022.
It generated free cash flows of $36.1 million in the quarter and ended the quarter with total cash and cash equivalents of $1.1 billion.
While DOCU stock has recovered from its 52-week lows, it is still down over 71% for the year. Growth stocks have faced the heat in 2022 amid rising interest rates. Higher rates lower the current values of future cash flows. There is no respite from rising rates in the short term and markets expect the Fed to raise rates by another 50 basis points later this month.
Growth Stocks Have Crashed in 2022 amid High Inflation, Rising Rates
While many economists believe that inflation would drop considerably next year, Bill Ackman of Pershing Square Holdings has a contrarian view and believes that it won’t fall below the Fed’s targeted range of 2% anytime soon.
Higher inflation has taken a toll on US stocks, especially the growth names. However, there is a list of investments that can do well in inflation.
Value stocks have outperformed the markets over the last year and several analysts advise risk-averse investors to shift to value stocks given the current macroeconomic scenario. We have a guide on how to buy stocks through PayPal.
DocuSign Provided In-Line Guidance
DocuSign expects to post revenues between $637-$641 million in the fiscal fourth quarter. The company forecasted subscription revenues between $624-$628 million. It expects adjusted gross margins to be between 82%-83% in the quarter. For the next fiscal year, DOCU expects sales to slow down though, and sees revenues rising in the high single digits.
Thygesen is meanwhile bullish on the company’s long-term forecast even as he admitted that it did not execute well of late. He said, “It’s clear we did not pivot quickly enough and we were slow to make changes.”
Thygesen added, “We lost some innovation velocity. We didn’t fully address the changing market dynamics nor mature our operations and systems sufficiently. We understand those gaps, and we’re committed to moving forward with more transparency. I think the good news is that the future is in our own hands.”
The company sees a $50 billion global TAM (total addressable market) for its services. Some Wall Street analysts see DocuSign as a good long-term buy to play the digital transformation. There is a guide on buying DocuSign stock.
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This article was written for Business 2 Community by Mohit Oberoi.
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