40% revenue increase is good. Most likely the expenses or cash flow initially spooked the market as it was down -6% or so after hours initially, but now is already back to about even with where it closed today.
So that 40% this quarter is almost as high as last quarter and higher than their growth over the rest of the past two years.
Top end of Q4 guidance would put them at +34% in Q4. However, note that the Q3 number beat the top end of what they guided to three months ago by 3.3%. If they beat by by a similar amount, Q4 will be +38.1%, which would be little slower than the last two quarters, but still higher than their growth in any quarter last year.
So nothing that blows me away, but doesn’t look bad either. I’m happy to keep holding my relatively small DOCU stake and let it continue to play out. If their e-signature business can continue to grow just in-line with the expectations for the total e-signature market over the next couple of years and get any contribution from the agreement cloud services, this should be a pretty safe holding with possibility of outsized returns.
DOCU’s Subscription revenue was up 41%. Professional services were $11.4 million, up 28%.
Last quarter subscription revenue was up 39% and Professional Services revenue was $14.8, up 72% YOY. This caused total revenue to be up 41% last quarter, versus 40% this quarter.
Professional Services revenue is still an elevated level at $11.4 million. I take this as a good sign. I see this as an indicator of continued increase in Subscription revenue growth.
Here was my post on the Tinker board in September;
I’m thinking DOCU can be onto something big with the Systems of Agreement.
First, here’s what DOCU says about what their Professional Services revenue is:
We also generate revenue from professional and other non-subscription services, which consists primarily of fees associated
with providing new customers deployment and integration services. Other revenue includes amounts derived from sales of
on-premises solutions. Professional services and other revenue accounted for 5%, 7% and 9% of our revenue in the years
ended January 31, 2019, 2018 and 2017. We anticipate continuing to invest in customer success through our professional
services offerings as we believe it plays an important role in accelerating our customers’ deployment of our software suite,
which helps to drive customer retention and expansion of the use of the DocuSign Agreement Cloud.
I see Professional Services revenue as a potential leading indicator of future Subscription Revenue growth.
Here are their professional services revenue by quarter, followed by YOY
Q1 2018: $6.6 million
Q2 2018: $8.0 million
Q3 2018: $7.7 million
Q4 2018: $11.5 million
Q1 2019: $7.6 million (+14%)
Q2 2019: $8.6 million (+7%)
Q3 2019: $9.0 million (+17%)
Q4 2019: $12.2 million (+5%)
Q1 2020: $12.5 million (+64%)*
Q2 2020: $14.8 million (+72%)
*This quarter, they released Docusign Agreement Cloud
DocuSign Agreement Cloud. In March the company announced the DocuSign Agreement Cloud—a suite of more than a dozen products and 350 integrations for digitally transforming how organizations prepare, sign, act on and manage agreements. By helping to automate and connect the entire agreement process, the DocuSign Agreement Cloud allows organizations to do business faster, with less risk, and lower costs, and in turn deliver better experiences for customers, partners, and employees. This comprehensive suite defines a new category of cloud software that we believe has the potential to significantly expand our total addressable market. (Quarter ended April 30)
Here are subscription revenues by quarter
Q12018: $107
Q22018: $118
Q32018: $123
Q42018: $137
Q12019: $148 (+39%)
Q22019: $159 (+35%)
Q32019: $169 (+38%)
Q42019: $188 (+37%)
Q12020: $202 (+36%)
Q22020: $221 (+39%)
Their subscription revenue growth has been pretty consistent in the mid-high thirties all this time.
I know there are some theories that “valuation does not matter” or “I pay whatever the market deems it worth.” I know Value Line and the current IBD 50 have compounded an impressive record buying only stocks going up with improving fundamentals without any regard to valuation, so there is evidence it works, but I see DOCU as diversification, it’s growing at 41%, just below much higher priced OKTA, which just grew at 45%, with declining growth rates, more and more crowded space (though they are by far the leader), and much higher price ratios.