Docusign (DOCU)

Another of the pandemic darlings, I might characterize this a falling missile as opposed to a falling knife. Down another 25% today after a downward revision in billings, the stock has now fallen from a 52 week high of $314.76 to roughly $65. Stock now trading roughly back where it sat in mid-2019, though revenue up about 3x from 2019 and 2.2x from start of pandemic to TTM.

I actually like Docusign’s business model a decent bit. They haven’t quite become their own verb (Google, Zoom), but not too far off. Two major short-term issues:

  1. They extrapolated 2020 thru mid 2021 growth and hired excessively, so current cost structure is a bit misaligned.

  2. Everyone is focused on lack of revenue growth post-pandemic, but I’d argue for Docusign softening economic conditions may be close to as big of a factor as changing customer patterns (e.g. ETSY).

Long-term, think the business model still has some strong tail winds, and has shown some potential for operating leverage. I’m not sure exactly how sticky the service is for some of their newer offerings (further partnerships with MSFT a positive), nor is this a buy and come back in five year like GOOGL, but I’d definitely keeping my eye on this one. Given lack of near term catalyst I’ll probably wait for what I expect to be another couple mediocre/poor quarters and see if the market offers a true capitulation price. Currently at some 5.3x expected Jan. 2023 sales, so on that basis back in the realm of the less obscene.