Docu "Sales problem" are a blip.

An elongation in the sales cycle for a more complex but more valuable subscription is perfectly acceptable to me, and in fact preferable to a short low value sale.

A longer sales cycle might seem to be negative, but that is wholly dependent on how much the individual rep has to put into the sale itself.

If they can call on (for example) five customers a week and sell something of value X that closes in a week then that’s fine.

If they can call on five customers per week and sell something of greater value than X (that percentage is unknown at the moment but is probably more than 10%) that closes in a month then there will be a temporary blip which is what we are seeing, but the cadence of sales will be unaffected after that blip because the issue is with the customers’ internal signoff loop being more complex.

The first think that I do in cases like where I hear about sales issues is go to read the employee reviews at Glassdoor.com. In Docusign’s case then the MDRs and reps are excited by the opportunities rather than overwhelmed or despondent:
https://www.glassdoor.com/Reviews/DocuSign-Reviews-E307604.h…

Compare and contrast that by reading the reviews at Glassdoor for Nutanix, where sales issues were flagged up at least 8 months ago and continue to this day:
https://www.glassdoor.com/Reviews/Nutanix-Reviews-E429159.ht…

So please don’t conflate the prospects of the two companies (I know that a number of people were badly burned by NTNX) because they have completely different sales issues.

Cheers, PB.

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Good thoughts PB, I looked at DOCU, but sold after the last earnings release. I’m trying to be a bit more decisive in my actions, but also act with understanding, I did this because X.

X in my case for DOCU is: what is the evidence for DocuSign Agreement Cloud? Sure, the sales cycle elongation could be reasonable given the additional complexity of what they’re selling, but the big question for me, and the X in my reason for selling is…

“Can I see any evidence that DAC is doing well?”

And my answer after reviewing the conference call is… no. Theres lots of noise about DAC, and how DAC is the future of DocuSign, and negative noise about the elongation of the sales cycle, but I didn’t see a lot of positive “lots of our customers are shifting to DAC”.

So, watching for signs of a pickup in DAC, customer enthusiasm and buy-in. I’d (naively) think… if you were already a DocuSign customer, it’d be a pretty simple sale to DAC. But… at the moment, it doesnt appear so. So all real news is negative (sales cycle elongation) and all positive stuff is in the future.

But might be missing something!

cheers
Greg

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Good question, Greg!

“Can I see any evidence that DAC is doing well?”

Not definitively until next quarter’s earnings since it was only officially launched in very late March, so had very little impact on DOCU’s Q1 apart from increasing the sales.

But they have guided higher for Q2 and this fiscal year so they are confident that it will succeed, as am I.

Cheers, PB.

p.s. I put my money where my mouth is and doubled my position before the open on Friday because I’m confident that they will succeed.

Cheers, PB.

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Hey PB, I went back through my notes on the CC to pull out my reasoning. Feel free to pick holes!

I did pick up several red flags, and not many green ones.

Firstly, the delay is sales cycle. There was a bunch of questions (IMO correct ones) about this, and the answers were a bit concerning.

  1. The sales team is not up to selling the DocuSign Agreement Cloud, have trialled the process, now are rolling it out. Will it work?

  2. No expected gain in net retention rate, they gave a range of 112-119%. The most it sounded like they were expecting with the DAC was “We should see that rate move into those ranges over time.”. Not exactly hitting it out of the park.

The other big red flag for me was when they were asked about average customer value… they said

“Our focus when we land a new customer is to size that initial deployment at a level that we have great confidence that they can adopt it.”
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
This suggests the installation/adoption is complicated. That could be great lock-in…

Except…
“If we try to push deal sizes, the initial motion, it increases our risk of churn.”
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

ALERT! :wink: That says to me that people go “ah, too hard” and just walk away. They don’t go “wow, this is hard, but life-changing, I’m gonna crawl over broken glass!”.

They’re still doing reasonably well, growing the business, pretty good gross margins etc. But it doesn’t look like a rocket ship to me. But good luck!

cheers
Greg

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Always subject to be wrong, but when the narrative does not equate to the real world facts, then red flag…period, absent some sort of FUD event not related to fundamentals.

The CEO exuberantly sold the SOA (System of Agreements) as a game changing product for the company and the world. And yet the Spring company they bought, that was the key enabler of this only had $20 million in revenues.

No one has answered for me the question of what makes Docusign’s SOA so world beating? I mean Adobe offers cloud products, that I assume include document automation and integration. I know Hot Docs does the same. You can practically do the same thing with integration through Smartsheets, and in a more limited fashion through Trello.

Add Dropbox in the mix and almost any collaborative process software, that can link with say Salesforce and provide a very adequate SOA system.

So what makes Docusign’s SOA superior and compelling vs. the rest? I believe that is a very imperative question given the fact that narrative and real world facts are not equating.

This is also in the context of alternative investment alternatives. We know that Anaplan, for example, is accelerating in growth and product adoption. Why? The CEO gives us reasons, but we cannot know in detail why or why not. What we can see is the CEO’s narrative equating to real world facts and numbers.

So what then makes Docusign a compelling place to put my money? Oh yes, the usual, the same one used so many times in the past, “it is cheap”. Tell that to Nutanix, Cloudera, Talend, Nvidia (when it got cheap, it was a great investment when it was not cheap), Zuo, and a nearly unanimous 100% correlation list.

I hope I am wrong here…if so, so be it. Nothing is certain, that is why it is a risk/reward proposition with every investment. All you are doing when the fundamentals do not equate to the narrative is speculate that things will improve. This differs from a business moving on all cylinders, or from a true FUD event. Those present not speculation, but real world information.

For what it is worth.

Tinker

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yes the CC call had some negatives. But the CEO did say that one sales deal that they expected to finish by the end of the quarter got pushed out and finished 10 days into May.

And normally, we would have had a more straightforward eSignature only. They were interested in also looking at some of the CLM capabilities of Spring. And as we got to the sort of end of the quarter, we realized our normal sort of pacing and process would take longer and the deal to close 10 days after the end of the quarter. But going into the quarter, we would have expected, in a traditional eSignature sales cycle, a single product, fewer signatures required, et cetera, that it will be faster. So, that’s kind of what we tend to see.

Yeah. I think that’s exactly right. And then, just to your specific question, I gave the one example of the large bank with 10 days. If you want to think about the time of that elongation, 10 days past the end of the quarter before that one then came through in May.

Is that good enough to believe management?

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Is that good enough to believe management?

Wrong question. Saul’s method is to sell if in doubt and to buy back if selling was a mistake.

Saul, did I get that right?

Denny Schlesinger

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But management raised full year revenue guidance too. If the low billings growth was expected to last a while and management was unsure that the new SOA products would sell well why would they raise full year guidance?

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But management raised full year revenue guidance too. If the low billings growth was expected to last a while and management was unsure that the new SOA products would sell well why would they raise full year guidance?

We are addressing two different issues, you are addressing Docusign’s management’s credibility, I’m addressing the investor’s mindset. If you trust management hold or add, if not, sell. Not to compare to Nutanix, but their management was not credible.

Denny Schlesinger

Disclosure, I sold DOCU on April 22 at $53.99 at a nice profit and it had nothing to do with management credibility. I sold because the story was about a future opportunity. Maybe this longer sales cycle product is it. There is nothing stopping me from getting back into DOCU.

I’ve posted my reasoning about DOCU on at least two other threads. I’m going to thrash that dead horse one more time.

IMO, DOCU faces the “if it ain’t broke, don’t fix it” syndrome. 100% of businesses already have an agreement process. Pick up a handyman from Home Depot for a day working in the yard and an agreement is consummated with a handshake or nod of the head. Primitive as it may be, that’s an agreement process. It is only a rare instance where the existing process is not functioning at least adequately.

What is the motivation for ripping out an adequately function process and replacing it with a new one. Aside from the product cost, there are transition costs. Agreements are usually embedded quite deeply in some overall business process. There’s another deterrent to procuring this product. Attendant risks and costs of transition are quite high.

What’s the ROI and payback period? These two numbers are the financial keys to go/no-go decisions. The longer the payback period, the more compelling the ROI has to be to get a go ahead on the project. Management tends to be skeptical of projects with extended payback periods. ROI is always subject to a lot of assumptions and even manipulation. Payback is based on pretty easy to determine project implementation costs and near term returns. In the long run DOCU may offer reduced cost, improved efficiency and enhanced integrity and security. But managers are on the hook for this quarter and next quarter. Look into the future much beyond that and managers often plan to be in a different position by then (maybe even at a different company).

What I’m suggesting is that those extended sales cycles may come from something other than a more complicated and comprehensive product. The purchasing resistance may stem from the increased time, cost and disruption (risks) of replacing an adequately functioning system with a new one.

I sold my small position. I think there are a number of alternative investment opportunities that I can hold with greater confidence.

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"The CEO exuberantly sold the SOA (System of Agreements) as a game changing product for the company and the world. And yet the Spring company they bought, that was the key enabler of this only had $20 million in revenues.

No one has answered for me the question of what makes Docusign’s SOA so world beating?"

Because it’s brand new. Much like Twilio was when it started.

"IMO, DOCU faces the “if it ain’t broke, don’t fix it” syndrome. 100% of businesses already have an agreement process. Pick up a handyman from Home Depot for a day working in the yard and an agreement is consummated with a handshake or nod of the head. Primitive as it may be, that’s an agreement process. It is only a rare instance where the existing process is not functioning at least adequately.

What is the motivation for ripping out an adequately function process and replacing it with a new one. Aside from the product cost, there are transition costs. Agreements are usually embedded quite deeply in some overall business process. There’s another deterrent to procuring this product. Attendant risks and costs of transition are quite high."

Because the current process isn’t broken but it is very inefficient, so can be streamlined and save the company money.

Cheers, PB.

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DOCU faces the “if it ain’t broke, don’t fix it” syndrome. 100% of businesses already have an agreement process… It is only a rare instance where the existing process is not functioning at least adequately.

Hi Brittlerock,
I thought that this was a very insightful analysis. Thanks for posting it.
Saul

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100% of businesses already have an agreement process… It is only a rare instance where the existing process is not functioning at least adequately.

to me, that’s like saying that paying in cash works adequately, so why invest in Square?

Actually just about every company we discuss on this board is replacing a process that functions “adequately” for most companies. However, they are replacing it with a much better solution…just like DOCU is striving to do with SOA.

Whether they will be successful there or not, certainly the jury is still out. But being the dominant market leader in e-signatures, which is expected to grow 30%/yr, should limit the investing downside here even if they don’t pull off the kind of success in SOA that management thinks they can realize.

I did buy a first small position on friday after the stock price took the post-earnings hit. It’s my smallest holding, but one that I’d like to see play out for a couple quarters, as I think the potential upside exceeds the downside risk, even taking into account a couple quarters of opportunity cost.

-mekong

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There is clearly more risk with DOCU right now with increased sales cycles and a slowdown in billings, which has occurred over the last year not just this last quarter, and a shift to trying to sell the agreement cloud.

A minor point, I don’t like the switch from “system of agreement” to “agreement cloud”. Very minor point but it feels like they are adding the buzzword cloud to generate excitement. Very salesmanish.

Also, I didn’t like the markets reaction. I don’t like to fight the market. If you pull up a chart of the last year, you can clearly see DOCU falling below 50 is a big deal. The market is telling us there is more uncertainty right now.

I found it interesting that Salesforce choose to buy Tableau for about $16B, when they could have bought DOCU for less, which is growing much faster and they have worked with for a while so they know very well. That tells me something.

Might still turn out great, to much risk for me right now, but will watch for signs of them succeeding with the system of agreement.

Jim

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I found it interesting that Salesforce choose to buy Tableau for about $16B, when they could have bought DOCU for less, which is growing much faster and they have worked with for a while so they know very well. That tells me something.

Dunno Jim…doesn’t mean much to me. You would have to presume that DOCU wanted to be taken out…perhaps it does not and could be rejecting advances. We are never privy to these types of discussions and overtures that go on all the time.

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What is there preventing Salesforce from acquiring Docusign as well? I certainly don’t see anything, aside from someone else (my vote would be ServiceNow) acquiring them first. I wouldn’t write it off as a possibility in either (or some other) direction, is my point…

I figure CRM is going to be busy for awhile trying to digest DATA, so the likelihood may be less, but definitely not zero.

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