The Rise and Fall of DocuSign
DocuSign (NASDAQ: DOCU) shot up like a rocket in 2021, defying gravity and soaring to market stardom. Its e-signature service was a hit, all apocalyptic prophesies by bears came to naught and investors couldn’t have been more euphoric. But as the tides of fortune have turned, so has the story of this once high-flying stock.
Image source: Getty Images.
The company’s stock now languishes around $50, far from its heyday. Why? Look no further than the cool down of its growth, a choppy sea of market headwinds, and the departure of its CEO, Dan Springer, in 2022. A period where the competition, especially the towering presence of Adobe (NASDAQ: ADBE), began to cast shadows on DocuSign’s growth potential.
Where Did DocuSign Stumble?
From fiscal 2019 to fiscal 2023, DocuSign’s revenue grew at a compound annual growth rate (CAGR) of 37%. However, its billings and revenue growth decelerated significantly in fiscal 2022 and fiscal 2023. The future isn’t looking particularly bright either, with forecasted billings and revenue rising only at a snail’s pace for fiscal 2024.
| Metric | FY 2019 | FY 2020 | FY 2021 | FY 2022 | FY 2023 |
|---|---|---|---|---|---|
| Billings growth | 34% | 38% | 56% | 37% | 13% |
| Revenue growth | 35% | 39% | 49% | 45% | 19% |
Data source: DocuSign.
DocuSign’s operating margins are expanding as it curtails its spending, giving hope for a profitable shift in fiscal 2024. However, this frugal approach might hinder its transformation into a diversified cloud software company. Coupled with the inability of its new features to significantly expand its market share, the company faces an uphill battle against giants like Adobe.
The Race Against Adobe
The bulls may wager on DocuSign’s evolution into a diversified cloud software leader akin to Adobe. However, the story of Adobe and DocuSign unfurls quite differently. Adobe’s pre-existing stronghold in the digital media software market and a broad diversification left DocuSign trailing significantly. While DocuSign was consumed with establishing itself as the forerunner in digital signatures, Adobe had already entrenched itself in various market domains before making a shrewd cloud-based leap.
DocuSign’s tardy expansion into diversified solutions indicates a missed opportunity. As it grapples with market saturation and intense competition, it’s a race against time for DocuSign to catch up with Adobe.
Future Projections: Can DocuSign Shift the Tide?
DocuSign holds a meager valuation, trading at less than 4 times this year’s sales, whereas Adobe, with faster growth, trades at 13 times this year’s sales. This disparity illustrates the challenges DocuSign faces in becoming the next Adobe. With its place in the pantheon of cloud software giants seemingly unattainable, DocuSign must focus on stabilization and sustainable growth at an achievable evaluation, rather than chasing an elusive star.
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Leo Sun has positions in Adobe. The Motley Fool has positions in and recommends Adobe, DocuSign, Microsoft, Salesforce, and Zoom Video Communications. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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