A Docusign one-month update
Back a month ago I wrote the following:
Docusign and Zoom got enormous pushes from Covid, with huge increases in adoption of their base products Docusign-ing and Zoom-ing, but where does their growth go from here?
No one is going to quit remote signing and go back to paper, with or without Covid, but again, Docusign has already had their big growth push, and while revenue won’t shrink, and while it will keep growing, growth will slow rapidly. Think of it this way: They’ve already signed up the low hanging fruit, and with Covid, most of the middle hanging fruit as well. What’s left now is mostly the high-hanging, hard to get to sign-up fruit. Data will keep rising exponentially but the number of people who will need to sign documents remotely is finite and will come to an end!
Docusign has some exciting sounding new products in the works, but its base signature signing business is so large, and growing, with a current run rate of $1.5 billion. How much can these new products move the needle, especially since they are just starting out and are not instant set-up like the signing product? The CEO and CFO say it will be a few years until their new products’ revenue gets big enough to move the needle so that it can be broken out (see below). If they get $5 million in new sales per quarter (not bad coming off a base of near zero), they only move the total revenue needle about 1%. To grow 50% next year will take $750 million in ADDITIONAL revenue! And over $1.1 billion in additional revenue the second year. Where will that come from? Sales of their platform business will REALLY need to accelerate, considering that they are at about zero relative to their total revenue currently.
And I quoted the CEO and CFO as follows (paraphrased and shortened)
Dan Springer CEO
And I think the big three for us will be CLM, the Advanced Analytics, and Notary over the next two years. And Notary will never have the total opportunity that CLM or Advanced Analytics have. It’s going to be, a more sort of specific set of use cases. And so it’s not going to have the breadth of growth, but it’s going to be a good growth opportunity for it that will play out over a few years, the other ones will play out over many, many years.
Now, in terms of needle moving, I think that will be the difference between good and great. They WON’T, in the next few years, just because of the size of signature, be in a position where we’ll be saying that this is an important part of our total business. So as an example, like, I think if you go to Cynthia and you say, Cynthia, when will you break out some of these other products? It won’t be in in fiscal 2022. It might be there in 2023, I don’t know, Cynthia, you’re more knowledgeable, about when that would be appropriate, what? I wouldn’t say 2022, would we say 2023 is possible? What’s your thoughts on that?
Cynthia Gaylor CFO
… I would say it’s probably, it’s likely to be further out than that , if you just think about the product suite, and how big eSignature is as a percent of the revenue today and how quickly it’s growing. The other pieces are growing, but just off of a much smaller base.
In the Needham Conference, this month, they were still saying essentially the same thing: (paraphrased and shortened) –
Earlier in the year, when the pandemic started, it did slow some of the buying around CLM, but it’s a very small percentage of the revenue.
We start our sale with the DocuSign Agreement Cloud and we talk to customers about what the platform can provide and the innovation across the platform and the products portfolio. However, if a customer then says “That’s all well and good but what I need is eSignature”, we say, “ Yes sir, we will give you eSignature”. I think some of that dynamic has been heightened by the pandemic. But by the same token in the last quarter or so we have seen good pipeline traction with the broader portfolio of products.
And I would just also say, we are growing at scale? We have $1.3 billion or so of TTM revenue growing over 40%. That’s a pretty big base to be growing off of and eSignature is the vast majority of that revenue.
So when you think of the revenue base in some of these other products, even if they may be growing faster at times, eSignature can dwarf them from a contribution of revenue. So it will take a while for the other products to become a bigger percentage of revenue, but we are certainly on that trajectory.
And remember eSignature is a $25-billion market opportunity on its own. We are the largest by far and earlier this year we just crossed the billion dollar mark of revenue. So we have a lot of runway, a lot of greenfield.
Okay, so what do we have here?
We have Docusign which has totally dominated the electronic signature field. They’ve got it sewn up with no effective challengers and about a 70% or more share of the market. They got a big boost from Covid, but no one who has used Docusign is going to go back to paper signing after Covid. No one!
Their eSignature business will continue to grow with more companies signing up, with the companies who are already using them using them for more things, and with more international expansion. But it is hard for me to see how that can continue to add 50% more dollars yoy for more than another year (at most). The size of the additional money needed just gets too big.
They have great ideas for a Contract Lifecycle Management (CLM) platform, really excellent ideas, but in contrast to eSignature, this has really not taken off yet. They are saying it was held back by Covid, but what happens after Covid remains to be seen. CLM is not really a going concern yet. They say enterprises are “showing interest” and “getting ready” to engage, etc, but that’s much different than DataDog or Cloudstrike, for instance, where modules are already being taken up in a big way.
Besides which, also in contrast to Covid, there is much more competition, and potential competition, in contract lifecycle management. Any competent major company in the field, or a related field, can develop a contract lifecycle management platform if they think it’s worth their while. On the other hand, no company in their right mind is going to waste their money trying to compete with Docusign in eSignature.
Thus we have management keep saying that, yes, CLM is growing, there’s interest in it, but it’s still very small, and not likely to move the needle any time soon, and eSignature is doing fine thanks, but growth will inevitably slow down, though it’s not clear when.
But you must understand that CLM has NOT taken off yet, so betting on it is betting on a hope. You have to be clear in your head about that.
So you can see both why I am keeping my Docusign position only moderate-sized (7% at present), rather than large (because of worry about the negatives), and also why I AM keeping a moderate-sized position at present (because of the positives).
A link to the Knowledgebase for this board is in the Announcements panel that is on the right side of every page on this board.
For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially “How I Pick a Company to Invest In,” and “Why My Investing Criteria Have Changed,” and “Why It Really is Different.”