DocuSign (DOCU) Spooks Investors With Rare EPS Miss And Billings Guidance Reduction
3:06 pm Friday, June 10th, 2022
DocuSign (DOCU) is pulling back sharply after reporting Q1 (Apr) results last night. While it beat on revenue and guided Q2 revenue in-line, it missed on EPS for the first time in ten quarters. And probably even more worrisome was DOCU’s decision to reduce full year billings guidance. Management also made some discouraging comments on the call, which we think added to the decline in the stock.
Certainly macro factors had an impact. Management cited inflationary concerns, a volatile workforce environment and general global instability. Also, Europe is DOCU’s largest international market and the company cited some weakness in eastern Europe due to the war in Ukraine.
Another factor for the reduced billings guidance was that the company may have overestimated the impact from the pandemic and how long that tailwind might last. DOCU doubled the size of the company in just 6-7 quarters and just assumed the strong growth would continue, but there has been some tailing off. DOCU said that the removal of that very strong COVID tailwind effectively felt like a headwind.
Customers are now saying they bought a lot in the last couple of years and they want to slow that down a bit as the macro environment and inflation have made them nervous. DOCU sounds like it may have overestimated the normal land-and-expand trajectory it sees for new customers who then add on services later.
DocuSign also experienced higher churn with its sales reps. This was partly due to a lower stock price which reduced the incentive to stay. Also, management got feedback that people were tired after living through COVID and wanted a change. Also, closing deals has gotten harder for sales reps in a post-COVID world. In addition, DOCU is slowing its hiring plans to balance growth and profitability and for the reps it does hire, it takes time to ramp up sales. All of this factored into the weaker billings guidance.
Overall, DocuSign’s reduced billings guidance seems to have really spooked investors today. DOCU was the quintessential pandemic stock when people were not allowed to congregate. For example, a lot of real estate closings were done entirely via digital document creation. However, with the world getting back to normal, it seems that management may have overestimated how long the COVID tailwind might last. Also, it sounds like customers are tightening their belts given the inflation and uncertain macro environment. DOCU has lost its halo status, in our view, and we would be cautious about buying the dip until management gets a better handle on its business.
