There was more pain for the markets on Friday but nothing quite as severe as the waves of agony which washed over DocuSign (DOCU) investors.
The market wiped 42% of the shares’ value in reaction to the company’s October (F3Q22) quarter financials, despite the e-signature software maker beating the estimates on both the top-and bottom-line.
Revenue increased by 42.4% year-over-year to $545.46 million, beating the Street’s call by $14.21 million. Non-GAAP EPS of $0.58 also fared better than the consensus estimate - by $0.12.
That’s all well and good, however, the company missed on a key metric, with billings coming in at $565.2 million, well below the prior guidance of $585 million to $597 million.
Furthermore, the company’s outlook disappointed. For FQ4, DocuSign is calling for revenue of $560 million at the midpoint, well short of the Street’s forecast for $573.8 million. Additionally, while the analysts were anticipating billings of $705.4 million, DOCU expects these to come in at around $653 million.
Wedbush’ Daniel Ives calls the quarter a “debacle,” noting that customer buying behavior “appeared to change overnight.”
“Instead of billings handily beating the Street,” said the 5-star analyst, “The company missed on this key metric as it appears management was caught blindsided by the quickly changing sales environment which is a worrying trend for the Street.”
It all amounts to a sharp turn of sentiment for one of the pandemic era’s biggest winners. DocuSign benefited immensely from the WFH trend, however, after the outsized growth, even CEO Dan Springer has admitted customers are returning to “normalized buying patterns.” As Ives notes, the company now finds itself in a “much more difficult selling environment,” as it expands into “broader” CLM (contract lifecycle management) deals.
“It appears this transition will be rocky,” Ives sums up, And the risk/reward at current levels is not favorable to stay bullish with the clock hitting midnight on the DOCU hyper-growth story in our view.”
As such, Ives downgraded DOCU’s rating from Outperform (i.e., Buy) to Neutral (Hold), and lowered the price target all the way from $340 to $200. Nevertheless, following Friday’s bloodbath, there’s upside of 48% from current levels. (To watch Ives’ track record, click here)
Looking at the consensus breakdown, 4 other analysts join Ives on the sidelines, although with 9 Buys and an additional 1 Sell, the stock boasts a Moderate Buy consensus rating. Going by the $212.75 average target, shares are expected to claw back the losses and rise by 57% over the one-year timeframe. (See DocuSign stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.