DOCU: Deep Dive

Hi all:

I wrote this for the TMF DOCU Premium Board. Since Saul recently established a new position in DOCU, I thought I’d share it over here as well.

This is a deep dive into DocuSign (DOCU). It will be lengthy, but the purpose is to document the first 3 quarters of DocuSign’s existence as a public company. I am putting this on the board here, so that when Docusign reports earnings in its 4th Quarter (reportedly on March 7, 2019), those of us following the company will have some context into which we can view and understand their results. I am also hoping to spark discussion on this board about the merits (or not) of the company as an investment. I’ll start with some basic background on the company, its history, purpose, strategy and customers; then I’ll take a look financial results for the company’s 1st, 2nd and 3rd Quarters of its current Fiscal Year 2019; and finally, I’ll provide background on the current CEO at the company.


DocuSign was founded by Tom Gonser in 2003. Prior to this, Gonser was the founder and CEO of a company called NetUpdate. After stepping down as NetUpdate’s CEO set out to create an electronic signature startup company called DocuTouch that his former company had acquired. DocuTouch was created by entrepreneur Mir Hajmiragha. Gonser bought DocuTouch’s assets after leaving NetUpdate and from there he created DocuSign.

Keith Krach the founder of the software company Ariba (acquired by SAP), provided strong leadership at DocuSign for a decade of growth as a private company through its IPO. Krach served as the chairman of DocuSign from 2009 to 2018, and served as the company’s CEO for six years from 2011-2017.

On Friday, April 27th, 2018, DocuSign held its IPO joining the Nasdaq under the ticker symbol, DOCU. Shares opened at $38 apiece, well above the $29 Thursday night pricing. The stock held gains through the day, closing at $39.73, up 37 percent. The company raised $629.3 million in its initial public offering after pricing shares at $29.


Based in San Francisco, DocuSign provides electronic signature technology and digital transaction management services that facilitate electronic exchanges of signed documents. DocuSign provides authentication services, user identity management and workflow automation. (Source: Wikipedia)

Here is how the company defines their mission/purpose:

Since inception in 2003, DocuSign has been on a mission to accelerate business and simplify life for companies and people around the world.

We pioneered the development of e-signature technology, and today offer the world’s #1 e-signature solution. It’s just part of our broader cloud-based System of Agreement Platform, which allows companies of all sizes and across all industries to quickly modernize and digitize the entire agreement process—all the way from preparing agreements to signing, enacting and managing them—from almost anywhere in the world, on practically any device.

Our value is simple to understand: Legacy, paper-based agreement processes are manual, slow, expensive, and error-prone. We eliminate the paper, automate the process, and connect it to all the other systems that businesses are already using.

Our platform has 350+ prebuilt integrations with popular business apps. In addition, our API enables embedding and connecting DocuSign with customers’ websites, mobile apps, and custom workflows. All told, today this enables more than 400,000 customers and hundreds of millions of users to measure turnaround time in minutes rather than in days, substantially reduce costs, and largely eliminate errors.

Growth Strategy:

Here is a summary from DocuSign’s IPO filing (S-1) about their growth strategy. You can find the full information and learn a great deal from reading the entire S-1 (linked below this excerpt):

We intend to drive the growth of our business by executing on the following strategies:

*Drive new customer acquisition. Despite our success to date, we believe the market for e-signature remains largely underpenetrated…

*Expand use cases within existing customers. A company’s first exposure to DocuSign is often when our solution is used to accelerate the execution of sales agreements. Once a company begins to realize the benefits of our platform, we often have an opportunity to expand into other use cases…

*Accelerate international expansion. For the year ended January 31, 2017, we derived 17% of our revenue from customers outside the United States. We believe there is a substantial opportunity for us to increase our international customer base…

*Expand vertical solutions. While our platform is industry agnostic, we will continue to invest in sales, marketing and technical expertise across several industry verticals, each of which have differentiated business requirements…

*Strengthen and foster our developer community…

*Extend across the entire agreement process. Although our current solutions already cover many aspects of the agreement process, we intend to expand our platform to support “systems of agreement” for our customers…

Pg. 83-84:…

Market Landscape:

Total Addressable Market (TAM)

DocuSign estimates that the TAM for its core signature service is $25 Billion. Beyond this TAM, DocuSign believes that their efforts to integrate a full “System of Agreement (SoA)” platform into their offers could significantly expand its TAM. Here is CEO Dan Springer discussing TAM on the company’s Q3 conference call:

“First, every organization on the planet signs agreement, big businesses, small businesses, government agencies and not for profit. As a result, our TAM is substantial. We estimate our core eSignature business’ TAM at $25 billion, which is largely under-penetrated. This TAM is becoming available as organizations worldwide make the transformation from paper to eSignature. It usually starts when a specific department in an organization adopts eSignature. Later, it’s common for DocuSign to expand to other departments. And over time, we often see greater usage within each department. This is our core land and expand motion and our Q3 results are further evidence that it is working well… And remember that the $25 billion TAM is for eSignature only. We believe these additional offerings at least double our TAM to cover activities like preparing agreement, acting on them and managing them.”

With the Company’s recent acquisition of SpringCM, DocuSign intends to aggressively move towards marketing an e-System of Agreement platform. Here is how Docusign describes SoA:

A System of Agreement is about automating the core of doing business: the agreement process. Every organization runs on agreements, from customer and partner contracts to employment agreements to various forms of internal approvals and sign-offs. Agreements are different from normal documents because they often involve legal commitments and can be subject to regulatory rules about how they are signed and retained. These rules may differ by the type of agreement and by regional laws. Thus, agreements need specialized processes and systems. So, what exactly is a System of Agreement? It’s the means by which an agreement goes through the four phases of its lifecycle: Prepare, Sign, Act, and Manage.

For most companies, this lifecycle today involves a mess of manual processes, people, and legacy technologies…

The company believes that “Similar to how CRM platforms emerged for customer data, HCM platforms emerged for HR data, and ERP platforms emerged for Finance and Operations data, modern Systems of Agreement will play a similar role for agreements and agreement processing.” . IF successful, the DocuSign should see significant expansion of contacts with current enterprises and the potential to bring new customer’s into this company on this platform.

Read more about DocuSign’s SoA plans in this detailed document, from which the quote above was excerpted:…

Competitors & Competitive Advantage

The first thing to understand about DocuSign is as the first mover, they have a really strong brand. Krach spoke to this back in 2015 in this Forbes article:

“In the US, probably nine chances out of ten if you are buying a house, you’re going to DocuSign for it,” says Krach. “It’s become a verb in the real estate business. People say: ‘We’ll send you the documents. Just DocuSign them’. And that’s happening on Wall Street too.”…

While DocuSign is clearly the Top Dog, holding down a significcant share of the e-sig market (est. 70% marketshare), the company does have several competitors. Gartner lists these firms: Adobe, Ascertia, Barracuda Networks, Citrix, HelloSign, Lexmark, RPost, SIGNiX, Vasco.

Here’s what Marketwatch reported on IPO day regarding DOCU’s competition:

DocuSign said its biggest competitor is Adobe Systems Inc. ADBE, -0.06% , which acquired EchoSign, now called Abode Sign, in 2011.

“Adobe has a longer operating history, significant financial, technical, marketing and other resources, strong brand and customer recognition, a large intellectual-property portfolio and broad global distribution and presence,” DocuSign said. If competitors offer cheaper prices, DocuSign said it might have to lower its own, which would crimp margins.

Some competitors, like Vasco Data Security International Inc. US:VDSI , are using DocuSign’s IPO buzz to generate interest in their own businesses.

“DocuSign’s impending IPO is bringing well-deserved attention to the e-signature industry, estimated at $25 billion, and its leaders, including eSignLive by Vasco,” that company’s CEO, Scott Clements, said in a statement sent to MarketWatch.

DocuSign mentioned “potential” competitors in the e-signature business broadly but didn’t specifically discuss the prospect of tech giants like Microsoft Corp. MSFT, -0.36% , Inc. AMZN, -0.91% or Alphabet Inc. GOOGL, -0.45% launching products that would directly go up against it. Right now, DocuSign works nicely with Microsoft Word and Google Docs, but it’s conceivable that these companies could more seriously consider tapping the business-document market if they find it attractive.

Still, DocuSign’s decade-plus history in the space gives the company an advantage. “DocuSign has done a good job at the enterprise level of embedding its services into companies,” said Haslett. “Switching cost is relatively high even though the product is super simple.”…

Here is an analysis of Docusign Vs. Adobe:…

It is worth noting that just today, Dropbox announced their acquisition of HelloSign at a hefty $230 million purchase price. The company said that the workflow capabilities that HelloSign added in 2017 were really key to the purchase. Dropbox also said that the company will continue to encourage companies to extend the Dropbox solution, today’s acquisition gives it a capability of its own that doesn’t require a partnership and already is connected to Dropbox via Extensions. (This means that Dropbox users can still choose to use DocuSign with the application).…

Here is what DocuSign wrote in the S-1 (IPO filing) about their perceived competitive advantage:

"We believe we have significant points of differentiation that will enable us to continue our market leadership in e-signature and the broader automation of the agreement process:

*World’s #1 e-signature solution. Since inception, we have invested over $300 million in research and development to build the global platform of choice for e-signature and agreement automation. We integrate and interoperate with hundreds of the most popular business applications, making the deployment of DocuSign into a company’s existing systems seamless and simple. We have designed our platform to scale globally, allowing companies to sign and accept signatures nearly anywhere in the world. We believe we excel in simplifying complex transactions, especially where there are multiple parties involved. And we are a true platform which customers and partners have built on extensively, with nearly 60% of transactions processed via our API today.

*Brand recognition and reputation. Since our founding in 2003, DocuSign has enabled over 650 million Successful Transactions from hundreds of millions of users worldwide. As Forrester Research concluded in its recent assessment of the e-signature marketplace, DocuSign is the “strongest brand and market share leader: the company name is becoming a verb.” We have a Net Promoter Score of 63 as of October 2017. We believe that our association with positive events in people’s lives, such as accepting a job offer or buying their first house, can create a marketing halo effect that helps influence the adoption of our solution at their companies.

*Breadth, depth, and quality of customers. With a total of over 350,000 customers today, our platform accommodates enterprises, commercial businesses, and VSBs. Some of the world’s largest and most successful companies are DocuSign customers—including 7 of the top 10 global technology companies, 18 of the top 20 top global pharmaceutical companies, 10 of the top 15 global financial services companies, and U.S. federal, state, and local government agencies. And while we consider e-signature to still be a largely underpenetrated market, customers that have chosen e-signature have overwhelmingly chosen DocuSign.

*Vertically applied technology. While our platform is designed to serve any industry, we have expertise and features for specific verticals—including real estate, financial services, insurance, manufacturing, and healthcare and life sciences. In addition, in August 2017, DocuSign attained FedRAMP authorization to deliver services to United States federal government agencies.

*Robust partnership network. We have a multi-faceted partnership strategy that involves strategic partners, systems integrators, ISVs, and distributors and resellers. We have strategic partnerships with some of the world’s foremost technology providers— including Google, Oracle, Salesforce, and SAP. We integrate with many of the industry’s most popular business applications—including those from Google, NetSuite, Oracle, Salesforce, SAP, SAP SuccessFactors, and Workday. We also maintain deep relationships with leading systems integrators including Bluewolf (an IBM company), along with a range of regional systems integrators. In addition, we partner closely with a host of strategic ISVs such as Ellie Mae and Guidewire. Finally, the world’s largest distributors offer DocuSign to their tens of thousands of resellers (or “cloud solution providers”), which in turn gives us even greater global reach."

Finally, DocuSign believes its size (# of customers) provides a competitive advantage with its System of Agreement Platform. Here is CEO Springer again from the Q3 conference call:

We’ve seen System of Agreement really capture the enthusiasm of our customer base and I would say that’s across commercial and enterprise and people realize that eSignature is just the first piece that they want to go with. We continue to think from a land standpoint that there will be a lot of folks that start with eSignature but already, we’re seeing RFP’s getting [written] with System of Agreement as the construct for the RFP and obviously, we think we’re incredibly well positioned for those deals. So I don’t think we see that there is a lack of enthusiasm and appetite within our customer base for buying into the broader System of Agreement.

Key Metrics:


*More than 450,000 paying customers and hundreds of millions of users worldwide.

*Seven of the top 10 global technology companies.

*Eighteen of the top 20 global pharmaceutical companies.

*Ten of the top 15 global financial services companies.

*Total Customers:*

 Q1           Q2       Q3
400k         429k     454k

*Customers with annual contract value (ACV) >$300K:*

 Q1          Q2        Q3
215         246       285

*Revenue from international customers (mil)*

 Q1          Q2        Q3
$26         $29       $31

**Financials (figures rounded):**

*Billings (mil):*

 Q1          Q2        Q3
168.9       172.2     198

*Dollar Based Net Retention*

 _*Q1          Q2        Q3*_
_*114%        115%      114%*_

<i>_*Total Revenues (mil):*_</i>

 _*Q1          Q2        Q3*_
_*155.8       167       178.4*_

<i>_*Revenue: Subscription (mil):*_</i>

 _*Q1          Q2        Q3*_
_*148.2       158.5     169.4*_

<i>_*Revenue: Professional Services (mil):*_</i>

 _*Q1          Q2        Q3*_
_*7.6         8.58      9.0*_

<i>_*Cost of Revenue: Subscription (mil):*_</i>

 _*Q1          Q2        Q3*_
_*32.4         23       28.7*_

<i>_*Cost of Revenue: Professional Services (mil):*_</i>

 _*Q1          Q2        Q3*_
_*25.9        13.3      16.4*_

<i>_*Gross Margins (non-GAAP):*_</i>

 _*Q1          Q2        Q3*_
_*80%         81%       79%*_

<i>_*Earning per Diluted Shares (non-GAAP):*_</i>

 _*Q1          Q2        Q3*_
_*$.01        $.03      $.00*_

<i>_*Free Cash Flow (mil)*:_</i>

 _*Q1          Q2        Q3*_
_*8.8         18.4      (-4.3)*_

<i>_*Net Cash from Ops (mil):*_</i>

 _*Q1          Q2        Q3*_
 _*15         22.7      4.3*_

<i>_*Cash & Equivalents:*_</i>

 _*Q1          Q2        Q3*_
<i>_269.8M     819.2M      1.1B*_</i>

Notes on Q3:

*Re: Cash on books in Q3: The company issued $575.0 million in 0.5% Convertible Senior Notes due 2023. The offering generated net proceeds of $560.8 million.

*Also in Q3: SpringCM Inc. Acquisition. The company completed the acquisition of SpringCM Inc., a leading cloud-based document generation and contract lifecycle management software company, on September 4, 2018 for $218.8 million in cash, subject to adjustment. With SpringCM, DocuSign will accelerate customers’ ability to modernize their Systems of Agreement all the way from preparing to signing, acting-on, and managing agreements.

Current CEO: Daniel Springer

Springer ranked #3 out of 100 CEOs on Glassdoor’s Employees Choice Top CEO’s 2018 list. His current Glassdoor CEO approval rating is 97%.

This Geekwire article provides and excellent bio on Springer, here is an excerpt:

A little more than a year ago, Dan Springer was a stay-at-home dad. Today he is the CEO of a freshly minted public company now valued at close to $6 billion.

Springer joined the digital signature company DocuSign in January 2017 after taking close to four years off. Now with one of his sons in college and the other set to start this fall, Springer is in New York ringing the Nasdaq opening bell 15 months into his tenure as the chief executive of DocuSign.

“The best career decision I ever made was to spend those four years as a single dad focused on my sons,” Springer said in an interview with GeekWire Friday. “Coming back was the second best decision I ever made because I realized it’s what I enjoy doing. For myself what I missed professionally was the opportunity to help people build their careers. ”…

Here is his bio from LinkedIn:

Daniel Springer serves as CEO of DocuSign where he leads more than 2,000 employees worldwide to empower organizations of every size and industry to achieve their digital transformations, helping them make every agreement 100% digital. Springer has more than 25 years of executive leadership and experience in driving innovation and hyper growth across technology and, specifically, the Software-as-a-Service (SaaS) industry.

Prior to DocuSign, Springer served as Chairman and CEO at Responsys for ten years where he transformed and scaled the business from private start up to the leading cross-channel marketing automation platform globally as a publicly traded company. Springer then led the sale of Responsys to Oracle for $1.6 billion. During his tenure, Springer was honored as both a Bay Area Most Admired CEO and Best CEO.

Previously, he was Managing Director of Modem Media and also served as CEO at Telleo, Inc., CMO at NextCard, and a consultant at McKinsey & Company. He started his career at DRI/McGraw-Hill and Pacific Telesis. Springer holds an MBA from Harvard University and an AB in Mathematics and Economics from Occidental College.

Springer serves or has served as a board member at both public and private companies, including iCIMS, Ansira, YuMe, ELOAN (Banco Popular), Heighten, Persado, and eGroups (Yahoo!), as well as at nonprofits, including YearUp, The Urban School,, AdTech, The Randall Museum and The San Francisco Friends School.

That’s all I got (for now).

Best, Swift
Long DOCU; DOCU Ticker Guide



I have a small
position. Took it today.

I did not realize that going public was the founders exit strategy and that the company was not founder led.


Must do better research, it is real money.



Very nice writeup! Long DOCU.

Growth numbers in context:

Total Customers (000):                
 Q1     Q2     Q3      **Q2**      **Q3**
400    429    454    **7.3%**    **5.8%**
Customers with annual contract value (ACV) > $300K:                
 Q1     Q2     Q3      **Q2**      **Q3**
215    246    285   **14.4%**   **15.9%**
Revenue from international customers (mil)                
 Q1     Q2     Q3      **Q2**      **Q3**
$26    $29    $31   **11.5%**    **6.9%**

There is huge number of small customers growing slowly (7.3%, 5.8%) and a small number of ACV customers growing fast at two to three times the rate (14.4%, 15.9%). Revenue growth from international is slow.

Think of DocuSign as the printing press of the digital era. The printing press replaced scribes with robots except they didn’t call it that back then. Word processors completed the job. It’s not all that hard to make printing presses and word processors, that’s the position that DocuSign is in. That being the case, what is the moat? Brand name, positioning, mind share, first mover advantage, path dependence. Various names for pretty much the same thing. DocuSign is the market’s top pick and likely to stay that way. Of course giants can throw money at it but customers don’t care how much they spend on it.* They care to get the best at reasonable prices. That’s the moat.

Small customers are more likely to be price sensitive than ACVs for whom SoA is likely to produce huge savings and efficiencies for relatively little cost. I don’t know why international revenue is growing slowly but I figure it’s because developing economies are less likely to drop paper records. I’m amazed by how much is still being hand written in Venezuela. But technology diffuses and international revenue should accelerate in the future, DocuSign’s second wind five years from now?

Denny Schlesinger

  • Do customers care?
    DocuSign: “we have invested over $300 million in research and development”
    DropBox bought HelloSign at a hefty $230

Hi guys!

First of all thanks to all on the board for the great analysis on DOCU so far. It’s really interesting and, like many, I started a small position to force myself to look a bit deeper into the company.

I went through Q1-Q3 2019 earnings reports and the S-1 statement to gather some important numbers. Please note that it was hard to gather all information so if there is a little hole in the table it is because I couldn’t find the information. If someone found these missing links, please feel free to share. :slight_smile:

Also the quarterly numbers from 2017 and 2018 are GAAP numbers since there were no Non-GAAP numbers available for that period. You can find these numbers on page 80 of the S-1 statement.

Also, looking at the GAAP to Non-GAAP reconciliation in the earnings report, I feel confident to use Non-GAAP numbers going forward since the company mainly excludes stock based compensation there. I know it’s somewhat of a holy war among investors whether SBC should be expensed in the income statement or not. I totally agree with Saul and others that if you expense it in the income statement and account for share dilution you wrongly double-count the same thing. Also issuing shares does not make the company spend actual dollars. But enough of that.

Here are DOCU’s numbers in Saul-style tables:


 	Q1	Q2	Q3	Q4	Sum
2016	 	 	 	 	250,5
2017	83,7	92,3	97	108,4	381,4
2018	113,5	125,5	130,6	148,9	518,5
2019	155,8	167	178,4	194*	695,2

(*) high end of guidance range

Revenue Growth:

 	Q1	Q2	Q3	Q4	YOY
2017	 	 	 	 	52,26%
2018	35,60%	35,97%	34,64%	37,36%*	35,95%
2019	37,27%	33,07%	36,60%	30,29%	34,08%

As you can see revenue growth has been decelerating quite a bit from 2017 to 2018 but has remained stable in 2019. If the company beats their Q4 target they will get around 35% growth for FY 2019.


 	Q1	Q2	Q3	Q4
2018	126,6	130,1	141,7	 
2019	168,9	172,2	198	 

Billings growth:

 	Q1	Q2	Q3
2019	33,41%	32,36%	39,73%

As you can see, I couldn’t gather enough data to make any comprehensive comments. It’s nice to see growth accelerating in Q3 but I would assume that there is some lumpiness regarding billings, like we have seen with many other comparable companies.

Contract Liabilities (Deferred Revenue):

 	Q1	Q2	Q3	Q4
2017	 	 	 	190,2
2018	203	 	 	277,9
2019	290,5	297,4	323,7	 

It gets even messier when I look at deferred revenue. I just couldn’t find all the numbers from the reports. Unfortunately the company always compared their balance sheet to Q4 2018 in the earnings reports so far. But we see a nice growth trend here as well. In Q1 2019 deferred revenue grew 43%, which was great.

Gross Margin:

 	Q1	Q2	Q3	Q4	Full Year
2017	71,80%	74,00%	73,30%	73,34%	73,15%
2018	76,12%	77,37%	76,11%	78,84%	77,20%
2019	80,36%	81,50%	79,04%	79,50%*	80,05%

(*) using midrange of guidance

It looks like Gross Margin was increasing in 2019, but beware, this could also just be the effect of using GAAP numbers in 2017 and 2018 and NON-GAAP in 2019. Anyhow, NON-GAAP gross margins around 80% are top class, nothing to complain here.

Operating Margin:

 	Q1	Q2	Q3	Q4	Full Year 
2017	-41,94%	-31,31%	-30,10%	-20,85%	-30,36%
2018	-17,00%	-11,00%	-9,42%	-4,23%	-9,97%
2019	3,02%	2,51%	-0,56%	-2,32%*	1,14%

(*) using high end of revenue guidance and subtracting mid-range of expenses guidance

Now this is looking really good. Starting to understand why Saul started a small position here… (of course there is again a difference between GAAP (2017 and 2018) and NON-GAAP (2019) but still you can see a very clear and positive trend). Net margins show a similar picture: -30% in 2017, -10% in 2018 and currently +1%.

Customer count and retention rate numbers were already shared. Didn’t find any additional info regarding previous years here, except that the retention rate was 112% in Q2 2018, so a slight acceleration here as well.

Operating Cash Flow:

 	Q1	Q2	Q3	Q4	Sum
2016	 	 	 	 	-68
2017	 	 	 	 	-4,8
2018	-0,7	12,1	11,6	32	55
2019	15	22,7	4,3	 	42

Lastly, Operating CF has improved tremendously over the past few years. They already made almost as much OCF in Q1-Q3 2019 as in the whole FY 2018, and Q4 2018 was by far the best CF-quarter of the year. I’m really curious what they will make in Q4 2019; they don’t give guidance unfortunately.

Bottom line: This is a company that has very robust top-line growth, although well below many board favorites. Another big take-away is that they have made huge strides in improving the bottom line. Q3 2019 saw them spending a bit more again and Q4 also looks like they will spend more again. I read some comments from management that they were trying to tidy up the financial statements before the IPO so maybe they were a bit more constrained on spending in FY 2018/2019. We see that they went back to spending a bit more after the IPO, so it will be interesting to watch this development. Could that mean that top-line growth will accelerate again? Remains to be seen, I guess. On the other hand, if they start spending more and top-line growth does not improve that should be a yellow flag.

Best wishes,