Docusign TAM and Moat

Growth monkey recently asked about DOCU, so if interested, go back about a week for some good information.

Also, NPI, led by Denny, Duma, and Tinker has a great discussion for more info.…

All of this has got me interested in DOCU.

  1. The Numbers

Revenue growth of 36% YTD (thru 3 Q’s), last year was 36%

Gross margin of 80% YTD, 78% last year, 76% the year before

operating margin of 2% YTD, -2% last year, -18% the year before

cash flow positive and improving

cash of $1.1 Billion

So we have a company steadily growing around 36%, with improving profitability and over $1 billion in the bank.

  1. TAM
  • The company says $25 B, with sales of about $600 M there appears to be a lot of run left for growth

  • I think companies usually overestimate TAM, but in this case, if every legal document world wide is your market, the market is huge

  • The market is expanding and moving toward e signatures, it is just more efficient

  • 17% of rev. is international, so room left internationally for expansion

  • they are approved by the federal government, and a law was recently passed (21st century IDEA act), where federal agencies are asked to accelerate the use of e-signatures, which should expand their market

  • recently purchased SpringCM, to move into what they call the “system of agreement”, basically managing the entire approval process vs just the e signature. To me this can be a huge market, all businesses have projects, designs, documents, etc that have to move within the company for approval from different silo’s within the company.

  1. competitive advantage
  • They are clearly the leader in this market with the best name recognition

  • at one point they had the #1 most downloaded app, so they know how to design user friendly tech and have a digital presence

  • they work with SAP, Oracle, Microsoft, Salesforce, Workday, and many others, so there product is embedded and sold by large enterprise software companies

  • Net retention rate of 114% (customers are purchasing more)

  • NPS of 66 (companies like their product and customer service)

  • federal government approval (not sure if competitors have this)

  • impressive CEO, Daniel Springer, 98% glassdoor approval rating, and one of the Top CEO’s on glassdoor for 2018

My concerns

  • company has only been public for 3 q’s so not a lot of public history

  • next quarter guidance was for 30% growth, (not sure if being conservative or not since new public company, beat guidance by 6% and 3% the last 2 quarters)

  • will e signatures be a commodity and they will have no pricing power (gross margins are improving so this isn’t happening yet)

  • will they be able to transition into the “system of agreement” business vs just e signature

  • share based comp. is high, but since a new IPO, it might be a one time thing

  • big competitors, mainly worried about Adobe

Overall, I really like this company. I see a company growing around 36%, with improving profitability, a large TAM and some competitive advantages.

I started a beginning position in DOCU.



Two light points.

  1. When I was selling old house/buying new condo, DOCU was one of the greatest things I’ve ever experienced as a consumer. Made that miserable experience, on each end, so much better. Just rapid-clicking through stuff instead of printing, scanning, mailing all that junk paper is a huge deal when you’re in the stress and tension of finalizing big deals.

  2. Name recognition is infinitely more valuable than most people think. Once someone has it locked up and they are seen as the go-to source for anything, it has extreme value. Look at it from POV of a competitor trying to break in. If people feel a problem is solved with the big dogg in the space, and that big dogg has earned trust on a wide scale, why would anyone risk using another one? I also think it’s the perfect name. With Apple TV and Amazon Fire, not to mention Tivo, I thought Roku would go nowhere. Execution and quality of course are key, but once that brand is in the public mind, the value of that name recognition is incalculable.

“Invest Like the Best” has this marketing expert, Michael Duda, on recently. He touches on the value of brands…




I work in the television business, and part of my job involves reviewing and approving HUNDREDS of staff and crew start payroll packets and timecards. One of the shows that our company produces has, at its peak, 600 individual staff and crew members. That is just one show among the dozens we currently produce. Under the old system, all those staff/crew members had to fill out 20+ page start paperwork documents, and turn in weekly timecards. People made errors all the time on paper documents(missing signatures, putting their name in the company name box, etc, etc)and I will speak with conviction that since switching to DocuSign last year the process has reduced work hours required by easily 50%, and I would not be afraid to say upwards of 75%.

Here is how the process used to go:

  • Company employee spends time copying hundreds and hundreds of start paperwork packets
  • Company employee highlights all boxes across hundreds of packets for staff/crew member to fill out
  • Staff/crew member fills out paperwork (at 20+ pages, a time consuming process indeed, and errors get made all the time)
  • Paperwork is reviewed and approved page by page by company employee #1 (errors get made of course, pages go missing)
  • Paperwork is reviewed and approved page by page by company employee #2 (the above issues, and sometimes company employee #2 was off on location, or out sick, and a day was lost getting that payroll out to company employee #2 for signature)
  • Paperwork is reviewed and approved page by page by show accountant (all the above issues)
  • Paperwork is either scanned page by page or hand delivered to the payroll company
  • Paperwork is reviewed and approved page by page by the payroll company (all the above issues)
  • Payroll is finally processed

Under DocuSign:

  • Company employee creates digital document (one time process, and no need for highlighting)
  • Company employee emails document to staff/crew member
  • Staff/crew member types in name, address, other info ONE TIME and the entire document is automatically populated across all 20+ pages
  • Staff/crew member cannot submit back to company employee until every box is filled out correctly (no errors can be made)
  • Paperwork is sent automatically back to company employee #1 who receives and approves with ONE CLICK(no errors can be made)
  • Paperwork is sent automatically to company employee #2 who receives and approves with ONE CLICK (no errors can be made, and now this person can log on anywhere in the world and click approve)
  • Paperwork is sent automatically to show accountant who receives and approves with ONE CLICK (all the above benefits)
  • Paperwork is sent automatically to payroll company who receives and approves with ONE CLICK (all the above benefits)
  • Payroll is processed

As payroll was always due end of week, the review and approval process typically started on Monday morning and wasn’t really finished until checks were cut on Thursday. Using DocuSign, this entire process is now usually done by the end of day on Monday. It has been a game changer. Will explore the company more as an investment.



2. Name recognition is infinitely more valuable than most people think. Once someone has it locked up and they are seen as the go-to source for anything, it has extreme value.

How true!

Positioning is one of the most powerful marketing concepts. Originally, positioning focused on the product and with Ries and Trout grew to include building a product’s reputation and ranking among competitor’s products. Schaefer and Kuehlwein extend the concept beyond material and rational aspects to include ‘meaning’ carried by a brand’s mission or myth.[1] Primarily, positioning is about “the place a brand occupies in the mind of its target audience”.[2][3] Positioning is now a regular marketing activity or strategy. A national positioning strategy can often be used, or modified slightly, as a tool to accommodate entering into foreign markets.[2][4]

I recommend this book highly!

Positioning: The Battle for Your Mind by Al Ries and Jack Trout…

Denny Schlesinger

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I’ve arranged a call with Docusign’s IR Department to discuss its moat, competition etc and will post afterwards.

Docusign is convinced it has a strong competitive position and the almost 40% market share suggests these guys are right.

Will revert after the call.