Docusign Priors

[PaulWBryant]

First a little cleanup on Crowdstrike: https://discussion.fool.com/crowdstrike-priors-34916902.aspx

Most importantly I didn’t address CRWD’s guidance!

Prior Belief: Crowdstrike will increase FY guide to 1412m+. In Q1 they gave 1365.7m, up 45m the previous guide. So I’m guessing they up it a little more than 45m this time.

Also someone asked if Palo Alto’s strong quarter influenced my expectations. Absolutely. I think that backs up the “cybersecurity is seeing tailwinds” hypothesis.

On to Docusign! I have to admit it’s tricky. I thought RunnerGuy did a fine job here, and I think were in line on Revenue and Billings: https://discussion.fool.com/what-to-expect-with-docusign-in-q2-e…

Prior Belief: Docusign’s Revenue will come in around 520m (up 52% YoY and 10.9% sequentially). I wouldn’t be devastated with 515m as long as the guide is strong. And I wouldn’t be shocked to see more. This is especially difficult because they have kicked things into high gear the last several quarters. I’m not sure if the sequential growth will look more like the 12+ they saw in Q2 - Q4 of last year, or more like the 10% or so they have historically seen. 520m is splitting the difference for basically 11% sequential growth.

Prior Belief: Docusign’s Billings will be at least 600m (like RunnerGuy said). Maybe I should say a range of 600m - 620m, because less than 600m would be a little disappointing, and if they came in at more than 620m I think it would be time to get pretty excited.

Prior Belief: Docusign will add between 80,000 and 100,000 New Customers. They came in at 90,000 last quarter but that was an all time high, and with large numbers like these we can’t expect them to add more and more customers each quarter forever. If they hold steady or somewhere around there, I think this is an impressive level even for a very dominant company.

Prior Belief: Docusign’s Enterprise Customers and customers with ACV > $300k will be up around 10% each from their levels of 136,000 and 673 last quarter. Frankly it wouldn’t bother me if these grew 8% and it wouldn’t get me too excited if they grew 12%. But it’s nice to see them going up of course!

Prior Belief: Docusign will raise its FY Revenue Guide to at least 2110m and its FY Billings Guide to at least 2450m. Again, that’s just assuming they add slightly more than they did last quarter.

Other Priors:

GM will be over 80%
NRR will stay at 125% or higher
FCF and EPS will continue to tick up

I think these will be fine even if they fluctuate a little, so while I like to see stability and improvement, I’m not going to freak out much will small ups and downs.

Other thoughts
I always take Saul’s thoughts seriously – like when he says DOCU is currently a one-trick pony, which is doing very well now, and probably for several more quarters, but after that we are relying on hope that their new products will work. https://discussion.fool.com/could-you-please-comment-further-on-…
The only part I disagree with is that we are relying on their new products to carry them after a few quarters. I think they can grow for years to come on the back of e-signature alone, and any related products that take off are just gravy. I could be wrong, but that’s how I’m seeing it for now.

Bear

[rdgyy]

Thanks Bear for the details!

I did read over the weekend again the last 3 analysts interview with the CFO.

1. NRR - we shouldn’t expect this to be higher or really stay at 125%, the cfo explains that early renewals and prior conversative client subscriptions has lead to that bump, and they are really not focusing on that metric so much as they base is pretty significant and they are pushing to capture more new clients

2. From all of the transcripts I read, DOCU repeatedly said that any contributions from the agreement management and Notary will be very small numbers for the time being, which is not a concern for them since they can ride Signature to about $5B which is about 2.5x their current revenue.

They are looking on the additional services- AI, Notary, Agreement Management as long term growth levers which will help them reach $10B from their TAM of about $50B and that is more in the longer run (5 years?) And they are OK with that since they look at their business as a long term growth company

I think the main focus on the earning call is how much revenue they get from international expansion, which is their main focus for the moment. They have been focused on expanding further their 8 main regions (hired top dog executives for APJ and AU/NZ), pushing LATM through Mexico, looking at Nordic, and south western Europe. They still claim that their main competition is pen and paper. Another interesting angle here is that the push for carbon free environments, will certainly help with more companies going paperless - that was interesting conversation covered in one of their post earning analyst meetings.

[anthonyms]

2) From all of the transcripts I read, DOCU repeatedly said that any contributions from the agreement management and Notary will be very small numbers for the time being, which is not a concern for them since they can ride Signature to about $5B which is about 2.5x their current revenue.

For me this is the problem which I see as 3 fold.

1. There isn’t that much runway left when growing at 50% compared to other TAMs where the penetration rate is 1-2%

2. The longer this is effectively a 1 product company the greater the risk that another consolidator will just wrap this function into a much more consolidated product (think GoPro or Fitbit - why bother having a standalone when you can just have a watch or a phone; in fact think of everything you don’t need now because of your phone - a camera, alarm clock, watch, computer, calculator, diary, calendar and telephone). If Microsoft or Salesforce built this in as a native function then they are done for.

3. The more they rake in for this 1 product the more it will attract others in the space or platform/network operators to want to take some of this value chain. Whilst I’m not surprised how useful the world finds eSignatures, I am surprised how much of the value chain they have captured from it. I can’t believe those revenues or margins are sustainable. Especially when businesses find year after year how much these subscriptions are costing them.

Ant

[rdgyy]

Hi Ant,

Docusign has about 1M clients, that is a huge user base with network effects and product is super sticky. What the cfo is saying is that simply their revenue base is huge for the Notary, and AI,etc to move the needle in the next couple of quarters. They need time to fully mature these products and then upsale to their userbase which they are expanding. They are capturing international market rapidly, and doubling their investments in sales and marketing to growth that user base ASAP.

I don’t see anything wrong with their strategy, and I don’t see how this is a 1 product company. It will come down to execution, nobody is switching back to pen and paper and I don’t see any product that is better or that has larger network effects in addition to the 350 something integrations, massive developer base.

[Endoscopist]

I am the managing partner for a mid-sized medical practice with about 15 providers. I have been considering adding DocuSign for digital check-ins to our current EHR platform. I went through several calls and demos with DocuSign team and even when they repeatedly lowered the price, it is still quite expensive compared to other digital check-in vendors. They currently have contracts with a few large healthcare systems and one small ENT practice as clients so I think there is a huge TAM but pricing is going to be competitive. I think it would be important for them to continue to capture the bigger healthcare systems domestically.

[mizzmonika]

The reason I have been excited about DocuSign is the concept of owning the contract space.

This goes so far beyond the one-trick pony of an e-signature. I see the e-signature as a “land and expand” entry.

I did some consulting at a company where I had to review all the contracts and it’s a gigantic pain point.

You have to track these contracts in something (database, excel spreadsheets) and you have to manage things about them, including who owns them (and what happens when they leave the company?) but primarily most of these contracts expire at some point (but DIFFERENT points) and they have to be reviewed, usually by multiple people, and renewed or not renewed. The onus on renewal is up to the owner, who often forgets because there is no “alert” coming from your excel spreadsheet or small tracking database (or even worse, your file folder, because you just shoved your contract in it.). When you do renew, you wind up sending the contract around in email in endless loops with comments and edits and whatnot. And then when you do a similar contract for a new partnership, if the same people are not there to remind you of what they did in another contract, you wind up singing that same song and dancing that same dance again.

Even a small-ish company (100-200 ppl) can have hundreds of contracts if they have a lot of partnerships. I imagine enterprise companies have thousands and thousands and they are all repeating effort.

Solving the problem of just organizing the contracts in one place with owners, and triggering when to renew is huge and it looks like they are already doing workflow management in their Q1 examples, which helps get the right owners to review.

Adding the AI renewal aspects so that you don’t have to get lawyers involved until the end or accidentally shoot yourself is the really really hard part. This to me is the long game.

If DocuSign can pull this off, it could be huge. But the workflow management, organization, and compliance is huge on its own.

BUT as Saul and others say, it’s the hope - it’s not a forgone conclusion.

I could never see the optionality with Zoom - you don’t really need apps for your video conference and there are other ways to solve the zoom phone problem. But DocuSign has real optionality with contract management and I do hope they are smart enough to start small and then add tons of modules just like our favorite cyber security companies do.

This discussion has motivated me to spend some time soon really digging into their product line to see if it aligns with the pain points I have seen. I am ashamed to say I have made assumptions and have been lazy in really digging and now those of you who are meh on DocuSign are making me want to make sure.

Thank you for that and I will post more if I find something meaningful, or if someone else has already dug deeper I would love to hear your thinking, in private or public if you think it would be useful.

But I’m going to wait for the results first, because if they can’t grow in the short term I’m out regardless and I won’t be digging into anything. That’s the biggest thing I have learned from this board - to be a shorter-term thinker, as in “which companies are going to return the most to me in the next year?” Growing tremendously right now. Huge growth area for me, to readjust my thinking this way.

[WillO2028]

Hi Bear,
My holding a 5% position going into earning today is due to my agreement when you said, I think they can grow for years to come on the back of e-signature alone, and any related products that take off are just gravy.

Having followed this company for more than a year, I believe their CEO/Founder, Dan Springer, what he’s said repeatedly as he had during last quarters Conference Call following this not so much if a question here:

Question:
capacity-based model. And therefore, if you are seeing these cohorts that you added last year grow at or above previous rates, which it seems like you are with the expanding dollar-based net expansion, you’re very well positioned to actually, grow right through this and be even better positioned on the other side.

Dan Springer-
And so, I don’t think we don’t talk about the Q1 pull forward like it was some fixed amounts of pull forward that pays Peter and takes in Paul. We look at it as it’s just an increasing demand, and it really goes back as you and I have talked about in the past. So, the TAM, we are still in the early days, even of just with eSignature business, our penetration is so low, but it’s a very, very large ocean from which we’re pulling forward that continued strong customer demand. So that’s how we look at it. I think it’s fairly straightforward.

This and their repeatedly proven ability execute on tackling this TAM, I’m thinking I’m light going into earning here.

Best Jason