DocuSign Thoughts

[brandonwahl]

Back on 6/13 I explained my rationale for exiting ROKU and diverting those funds into ZM.

https://discussion.fool.com/a-profound-moment-34534614.aspx?sort…

Since that post, and as of this writing, ROKU has returned 92%, while ZM has performed slightly better at a 108% clip. Both outstanding results, and while that is a small sample size, it reinforces two key lessons I’ve learned on this board. Those being:

1. When investing in a small handful of companies it’s important to stay diligent about which ones get your dollars. Even the small 16% difference noted above really makes a difference over time.

2. There are no bonus points in getting higher complex stories correctly, when compared to something so blatantly obvious being presented. (Note: a few people on my original post claimed ROKU wasn’t complex, and that is totally fine. For me it was, and it’s my money.)

Doubling down on my ROKU vs ZM rationale, and at the risk of herd mentality (sorry couldn’t help myself), I have recently transitioned out of both FSLY/NET, and diverted those funds into DOCU. Here are my primary reasons for doing such:

1. I could list financial comparison metrics until we are all blue in the face, but here are some key takeaways for me:

• Quarterly revenue for DocuSign is accelerating, from 38% to 39% to 45% over the past three quarters.

• Cloudfare revenue is stagnant from 51% to 48% to 48% over the same timeframe. Let’s not discuss Fastly’s revenue.

• Paying customer count for DocuSign has risen 32% over previous three quarters (75k to 89k to 99k).

• Paying customer count for Cloudfare has risen 17% over the same period (82k to 89k to 96k). Again, we won’t discuss Fastly here.

Now of course I could sit here and cherry-pick stats all day, but those are the two that most jumped out at me. Moving on to my second, and larger, point:

2. Can anyone very simply explain what Cloudfare and Fastly do, and how that meaningfully benefits their customers? That’s a rhetorical question of course, as I understand the basic, core principal of their technology…they operate an edge network/CDN with many servers all over the world, and reference your geographic location to route you to the closest server so that your request loads faster…but what does that actually mean to customers? 25 milliseconds faster? 9 nanoseconds faster? I really don’t need my work email to get delivered to me that much faster. If Netflix takes 3 more seconds to load it has zero impact for me.

Now all that said, whenever this technology is brought up on the board someone inevitably chimes in, “yeah but that’s only the surface of what they do” at which point the tech discussions really start to get complex, and the business model gets muddied further (for me at least).

Ok, so what does DocuSign do? They allow people to sign documents digitally. Man, how simple is that! How easily identifiable for me to see the HOURS I’ve saved in a work week. For those buying a home, or going through a legal issue, it becomes personal HOURS too. As Saul stated so perfectly in his recent monthly review, “ no business customer is going back to manual signing of documents, with FedExing them back and forth over a period of days, when they can do it online. Just isn’t going to happen!”

While Cloudfare, like Roku, might continue to perform well above the pace of the market, I’m opting to place my investment dollars in a company that is accelerating, that I feel provides a more meaningful service, and one I feel is far simpler to study and understand in case something goes off the rails. For someone that works 12+ hours a day, that alone helps me keep better track on all my companies. Add it all up, and DocuSign seems like a no-brainer.

Brandon

[malcolmrdj]

Brandon,

Agree. DocuSign business seems simpler, and along with esignature, they are also building out contract analytics which in my line of work will save me exponentially more hours than the esignature function.

One thing I want to point out with Cloudflare and the paying customer metric - at the beginning of the work from home movement, Cloudflare began offering a key product, Cloudflare for Teams, for free until September 1. Given the timing of both (i) companies looking for ways to minimize expenses, and (ii) a large amount of online businesses being created during lock down, one would expect Cloudlflare to have acquired many non-paying customers whose meter will begin running September 1. We will see during the next ER what that figure looks like and how it impacts guidance.

Not arguing your point re simplicity, but I think it’s worth keeping an eye on this as it could lead to an uptick in paying customers. Once locked into the Cloudflare platform, there are many new products to funnel and upsell their way.

Thanks,
Malcolm

Long both DOCU and NET

[WillO2028]

“ DocuSign business seems simpler, and along with esignature, they are also building out contract analytics which in my line of work will save me exponentially more hours than the esignature function.”
-malcomrdj

The following was taken from SSI. I saved it because it describes in practical term what Contract Analytics is capable of and is why I’m at 17% DOCU presently.

Peter Offringa-
This is illustrated if we consider the buying decision for the CIO/CTO at a large company, like a financial institution, manufacturer, retailer or health care provider. Let’s assume they need to move their paper-based processes for managing contracts into a digitally enabled workflow. While electronic signature would be on their checklist, they would also be interested in other aspects of a vendor’s full offering that allow their organization to efficiently manage all the steps in executing and managing an agreement.

• How does the agreement get prepared? Are tools available to facilitate seamless workflows for contract assembly, negotiation with multiple parties and internal approvals through hierarchical levels?
• Are agreement generation steps and workflows deeply integrated with the business systems that other departments use, like CRM, HRM, procurement, etc?
• Can developers easily incorporate agreement workflows into the company’s online applications through complete and well-documented APIs?
• Does the vendor’s system have the ability break down the agreement into its contextually relevant clauses and conditions, with associated numerical values?
• Can triggers be set to monitor these values against external inputs (renewal dates, SLAs, interest rates, etc.)?
• Can the system ingest new third-party contracts that require review, break them down in component clauses, compare those to accepted terms and highlight areas of risk, all in a fully automated process?
• Once the agreement is signed, is it placed in a storage repository that is highly available and secure?
• Can a user easily search all agreements for specific terms, numerical values, conditionals, tags, or other meta-data? This should go far beyond simple text based search.
• If some types of documents need to be notarized, does the same system facilitate notary as an integrated step in the process, where successful notarization is automatically updated in the workflow?
• If my agreement requires collection of payment or transfer of funds, can the system integrate with a payment processor and include payment receipt as part of the approval workflow?
• Once the agreement is executed, can the system programmatically trigger actions in other external systems, like fulfillment or manufacturing?
  DocuSign is the only solution on the market that can address all of the use cases above. I think this is critical to appreciate the larger opportunity, particularly within the enterprise and even mid-market space. Digital signature is just one small step in the overall workflow. Providing automation and intelligence for processing agreements for an enterprise that generates thousands or millions of them a year will become a real driver of operational efficiency.
  In addition, all of these capabilities are available both through a user interface and programmatic APIs. The DocuSign CEO often cites a metric that over 60% of all interactions with the DocuSign system are executed through an API interface, not a UI. The fact that this is so high is a testament to the completeness and quality of DocuSign’s API offering and appeal to developers. To date, developers have created over 100k sandboxes on the platform and DocuSign completed a major update to their Developer Center in May, which made the experience even better. DocuSign claims that thousands of businesses have integrated with their agreement platform through APIs, including T-Mobile, loanDepot and Alameda County, CA.

Sounds like every enterprise in the world would benefit from this, no?

Jason

[mooo]

Not arguing here as well, but have to answer that one:
“If Netflix takes 3 more seconds to load it has zero impact for me.”

That makes a HUGE difference. On Conversion-Rate to be precice.
Not only search engine rankings of a website are affected by page speed, the biggest impact is on conversion-rate and that’s why pagespeed - and services like cloudflare and fastly matter so much.

Just an average example: A Service/Onlinestore with a Conversion Rate of 3%, average Order Value of $100 and 1.000.000 monthly sessions is going to make $120.000 more per month by reducing its page speed from 4 seconds to 2 seconds, meaning 2 seconds faster page load time = $120.000 more monthly revenue.

Try out this calculator:
https://speedboostr.com/roi-calculator/

https://pagebuilderaddons.com/wp-content/uploads/2019/08/Con…

[WillO2028]

Back to Docu,
Bears post below shows the number best in my opinion.

Thanks Bear.

Thanks for bringing it up, Jason. I had taken a position back in June: https://discussion.fool.com/thanks-for-the-write-up-kyle-on-the-…… but I exited in July after it went from $140 to $200+ in a month on no news (I bought it when it went down after earnings, but then it reversed course and went straight up). At the time I sold, I said I don’t think there’s much upside at this point. It’s a $41 billion e-signature company.

Well, now I feel I was wrong. Let’s look back to the numbers I cited when I bought in June. I’ll add the most recent quarter:

Percentage Revenue Growth YoY:
37 33 37 34
37 41 40 38
39 45

Percentage Billings Growth YoY:
33 32 40 31
27 47 36 40
59 61

Here’s how many customers they’ve added the last several quarters:

Oct 2018: 25k
Jan 2019: 23k
Apr 2019: 31k
Jul 2019: 29k
Oct 2019: 25k
Jan 2020: 27k
Apr 2020: 68k
Jul 2020: 88k

I think it’s clear now, this wasn’t a one quarter bump. This is a very extreme level-shift. No one is going back to paper for signing documents. Times are changing. I would like to change my tune as well. I now very much do think there’s upside remaining for DOCU.

Bear

[FFFL]

I would like to comment on NET , I am a techie in voice / video communication field and know something about network as well . The latency would be huge for real time interactive applications, for static content it doesn’t really matter that much . If we compare the usefulness of NET/ FSly vs DoCUsign , NET/Fsly are critical for SOME of businesses, such as video and voice driven apps as of now , they are extremely important for future 5G driven applications, we are just not there yet . DocuSIgn , on the other hand ,is useful for every single enterprise .

[rdgyy]

Hi Brandon,

If your investment strategy is only to invest in very simple to understand companies than what you said makes sense. I’m invested in both companies, both are platforms that will continue to expand rapidly.

I don’t blame you that you don’t understand the expanding TAM of Cloudflare with launch of new products, which as per Matthew Prince latest tweets “its daily” (referring to their TAM expenditure)

[XMFKBecks]

A concern that I’ve heard and share about Docusign is that its market cap may be nearly the same size as its total addressable market (TAM). It looks like DOCU’s market cap is about $37 billion. Docusign estimates that the e-signature TAM is approx. $25 billion.

Now, Docusign is/is going to be entering into contract management (contract lifecycle management, CLM) and use data science and artificial intelligence to help companies be more effective.

The question is – will this add enough total addressable market for Docusign to grow significantly from where it sits today?

[stocknovice]

A concern that I’ve heard and share about Docusign is that its market cap may be nearly the same size as its total addressable market (TAM). It looks like DOCU’s market cap is about $37 billion. Docusign estimates that the e-signature TAM is approx. $25 billion.

Karen -

That e-signature number is correct. DOCU estimates the contract lifecycle market at another $25B. It also estimates $1B from the e-notary company it recently acquired. So $51B total. At a current run rate of ~$1.4B, there should be plenty of room to grow if those estimates are even close to correct.

That’s the bull case, anyway. Hope it helps.

Joe

[eaglehaslanded]

In looking at docusign, I would have an up close perspective.

I am a lawyer and have historically gone thru mail, fed-ex, fax, email and scan for signatures. Certain deals seek to still insist on wet-ink signatures (e.g., real estate conveyances, large oil & gas transactions). Somewhat related, I recall some (but not all) of my IRA brokerage documents at schwab were fine with pure electronic signatures, and others required wet-ink (but they could be scanned and emailed). But I have seen significant real estate contracts ($1mm+) use docusign for original contract and amendments (not so for the actual loans and deeds).

Similarly, in Texas and all federal courts, we have been e-signing pleadings for ten years or more by merely typing /s/ before our name and converting to pdf for filing. But that is only for the lawyers. Clients, on the other hand, for day to day litigation (affidavits, verifications, oaths, etc.),settlement agreements, modest contracts, etc., have been forced to sign with ink.

So I see the upside. However, I suspect there will be a standards consolidation akin to a format war (ala VHS v betamax; see https://en.wikipedia.org/wiki/Format_war ). Seems like picking a/the winner of the format war is essential.

So why dont I use docusign? Because I subscribe to adobe acrobat pro–This was probably a Saul company a few years ago. It’s a relatively expensive subscription, but it works and it has features that I know how to use and are essential to my practice. And it has a signature service built in. So I use that. I am unlikely to change, because an incremental subscription increase is painless to me compared to learning how to use something new.

I suppose I am the poster boy for a Saul company client. And customers like me will let all these software subscription companies turn into the cable company, legacy electric, or the phone company eventually–cash machines with trapped sticky customers. So let’s find the next one and enjoy the ride. If we are going to be hostage clients, let’s at least own some of the upside.

[etagordon]

Eaglehaslanded,

I am refinancing my home. I started with one company, Rocket Mortgage, before finding a better deal elsewhere. Both companies are using electronic signing, with Rocket Mortgage using Docusign. Perhaps the law varies from state to state. I have not closed on the new loan yet, but am told that this too will be signed electronically.

Both mortgage companies are trying to automate things. I upload required documents to their site. If they need something more I get an email with instructions about what to upload, or an email for a particular document that requires signing. After talking with the original salesman, there is almost no human contact.

Gordon