Under Appreciated Value in Docusign

Investment Analysis Clubs Saul’s Investing Discussions
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~60% of Docusign’s revenues accrue from integrated use with partners such as Salesforce, SAP, Oracle, Microsoft and the like. Docusign is integrated in a large part of the eCommerce apparatus in the United States and Canada. Hoping to make it so as well in Europe and Asia. That creates high switching costs, recurring revenues, and basically reflexive use of Docusign without even thinking about it.

That same integration makes the following from Docusign’s System of Agreement offering (just starting to really sell it next month/February) even more powerful:

With DocuSign, hundreds of prebuilt connectors can pull data from systems of record to pre-fill agreements, embed the DocuSign experience in other applications where employees already work, and trigger post-agreement actions, like billing, account activation, or payments.

With Docusign already built into the eCommerce infrastructure it seems the next easy sale is to integrate the remainder of the Systems of Agreement offering as all things being equal, one vendor is better than two, with one invoice, one service desk, easier and more natural integration, and growing an existing relationship rather than a new one.

Docusign can use its already created integrations to give it SoA product an advantage over competitors.

Shall see if it is so. I look at Docusign as an upcoming Adobe like company that becomes the standard of contractual agreements. Adobe competes in this market of course, but their market share is 1/4 that of Docusign’s, and Adobe only competes with larger enterprises, whereas Docusign competes at all levels of the market.

Hypothetically, there is a lot to like about a Docusign investment from a business fundamental perspective.

Tinker

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I guess one danger is Adobe combining it in with its other enterprises platforms like e-commerce marketing or Adobe Connect or Acrobat. That would get them an advantage penetrating their existing installed base.
A

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Anything can happen but if Docusign has a 70% market share, it must be doing something right.

Adobe competes in e signtaures, but as far as I’m aware, it is not involved in System of Agreement.

I’m voting with my cash and have invested roughly 5% in this business; if it doesn’t work out, will sell and move on to the next one.

Its okay to be wrong; but its not okay to stay wrong.

GM

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Agree - Although Adobe are trying to out manoeuvre them and go for eSignature based transaction/payments which would be big.

Its okay to be wrong; but its not okay to stay wrong.

That’s a brilliant expression.

A

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https://blog.linksquares.com/2018/07/10/docusign-vs-adobe-si…

Here is a quick blog comparing Docusign vs. Adobe. With Docusign having 70% of the market, it is likely that Adobe has 15% or so. Docusign utterly dominating the market. The description from this blogger does make Docusign sound superior in most respects where it counts.

One other take away here is that the eSignature market is not very competitive. There is one dominant player, one very distant (but large) also ran, and then some asterisks from somewhere or another.

Large corporations like Salesforce, SAP, Microsoft, have chosen to integrated Docusign instead of create their own eSignature product. Evidencing either they don’t think the effort is worthwhile to create their own in-house product, or it is not so easy to do what Docusign does.

Since so much business is done with PDF it is natural for Adobe to be in the eSignature market. However, despite how natural this business appears to be with Adobe, it is clear Adobe either is not that good at it relatively speaking, or they have not really focused on it. The market has clearly spoken here.

My initial impressions here anyways. When Duma first brought up Docusign (I had seen it before but its share price had soared) it took awhile for me to get around to it, but then when I saw the share price crash and it just sensed like a bottom (seemed to be based more on the IPO stock pattern of go way up, crash, and then head back up to where it was before more so than anything fundamental) I had to jump into the company. It is my slowest growing of the companies I own, but like with Zscaler, it is a potential printer of large wads of cash.

I am quite satisfied with my investment here and will leave it as a “do nothing” and let it continue to grow its business. Subject to of course immediate change for any reason I deign to be important to me.

Tinker

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Here is what the CEO of Docusign said on the last earnings call when asked about competition, and Adobe specifically.

Dan Springer (CEO)

Yes. So on the specific ones you asked about, so from an Adobe standpoint, we continue to think they’re a great company but they’re not being as effective in this aspect of the business as they are – where they’re wonderfully successful in other segments. We do primarily still see Adobe take a bundling or discounting approach when they compete with us. And as Mike as you know walk through in the past, when we looked at competitive win we see them as being significant and competitive losses as being very, very rare. Nothing’s changed from the previous information we’ve shared there.

From your API vector, 60% of all of our transactions are now completed because they launched through an API call as opposed to someone logging into a web and mobile environment. We continue to see great strength there and our focus on the developer community, if anything even more dramatic than it has been in the past. And we’re not seeing sort of a phenomena of other players being stronger in that dimension. Keep in mind, when you move past Adobe, the next step the players are very, very small relative to our business. So someone would have to be doing something quite dramatic for us probably to sort of take notice of them making a successful inroad on that side. There’s no one we’ve seen particularly strong on that front.

Similar answer to your low-end question. On a cumulative standpoint, if we think about our web and mobile business, so the non-direct selling side of that business is performing incredibly well for us. So it may be that there’s some really small players, an individual is in terms of their tiny scale growing well. I haven’t actually had one brought to my attention in the last couple of quarters as interesting. And the only other Pete you left out is the legacy players and we talked in the past about the idea that there is some sort of on-prem players particularly in some other countries outside of the U.S. and sometimes they will have strength in a particular vertical. But for us our, view is not really an if question is just when those people will convert to the cloud and convert to DocuSign. So we continue to be appropriately aware and paying attention to competitive threat but not really seeing anything through this last quarter that was noteworthy.

The only competitor they are seeing right now is Adobe, and the competitive losses to Adobe are “very, very, rare.”

Jim

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This might be good for Docusign:
JMP: Potential catalyst ahead for DocuSign

https://seekingalpha.com/news/3417534

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I’ve had a position in DOCU for a little while now and agree with the board that its potential with SoA seems huge when considering all the various applications.

I own a real estate brokerage where every agent has their own DOCU account. In our industry the only real competitor is Dotloop. Dotloop is now owned by Zillow and is being marketed heavily within real estate as much more than an e-signature tool. They are positioning it as a Transaction Management platform (another way to say SoA). Anecdotally, I can tell you that they have a significant penetration in real estate. They are a preferred partner of Keller Williams (the largest brokerage in U.S.).

Zillow has its hands full right now and thus probably doesn’t have the bandwidth or focus to concentrate on Dotloops potential outside of real estate, but the product itself does have similar capabilities.

https://www.dotloop.com/

https://www.dotloop.com/blog/2013/02/keller-williams-realty-…

-Steve

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https://seekingalpha.com/news/3417456-td-ameritrade-institut…

Implications:
Quite easy for a company to accept many different esignature products. If it is complex to do or maintain they won’t. Suggests a low barrier of entry for this business.
So the moat that Docu has now is their brand. If they add the system of agreement it will create stickiness which adds to the moat.

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Now that the
“21st Century Integrated Digital Experience Act”
is signed into law, there should be acceleration of e-signature across federal government agencies…
https://www.congress.gov/bill/115th-congress/house-bill/5759…

The law specifically asks for this…
"SEC. 5. Electronic signatures.

Not later than 180 days after the date of the enactment of this Act, the head of each executive agency shall submit to the Director and the appropriate congressional committees a plan to accelerate the use of electronic signatures standards established under the Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7001 et seq.)."

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There does appear to be a common pattern amongst many of the SaaS companies and that is their rise has prompted the Federal government to also take steps to modernize and open up entirely new and very large markets for the new SaaS companies.

Nutanix, ZS, DOCU, are three of the top of my head who have mentioned this and who are certified to work with the Federal government.

Each indicate a very large market but slow to move, so don’t expect much right away.

With Nutanix, however, they already have substantial contracts with the Air Force, in fact their largest single contract in history. $20 million or so with Frame, if my memory is correct.

Tinker

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FWIW I just re-engaged my accountant to file my UK tax returns.

Usually the process goes like this:

  1. I forget about if for 9 months of the year
  2. I miss the physical paper filing deadline around September/October
  3. My accountant contacts me asking if I want to re-up with them for an electronic submission
  4. I say yes
  5. I forget about it till new year
  6. I spend a month getting hold of paper and electronic copies of consolidated tax certificates,
  7. signing applications for online submission,
  8. receiving faxes or downloading forms and printing them out
  9. signing forms
  10. scanning forms back to accountant
  11. receive notification of submission
  12. receive an invoice for services rendered
  13. forget to pay for 6 months
  14. pay after 2 chasers

This year it went like this:

  1. Client asks me to confirm services needed on email
  2. Client requests my documents (Jan)
  3. I sent the soft copies of necessary documents on dividend income for the financial year (yesterday)
  4. I receive an email with an invitation to sign into DocSafe and a username and password
  5. I enter doc safe and see: 1 my documents, 2 the filing form for my signature and 3 an invoice
  6. It asks me to attach an eSignature - I type on out and it is done
  7. I receive a notification of receipt and completion

It appears that Doc-Safe (a small UK cloud based outfit) is operating as a convergence of an online file storage, workflow manager and eSignature. It markets itself as:
docSAFE is the number one way to work in the cloud
Compliant, safe & secure file exchange • Electronic signatures • Available 24/7 • Audit trail
Access via desktop browser or mobile app

Not sure whether this is a rebranded version of a white label of another eSignature provider or a competitor to Box and Docusign.

Here are a few ranking sites:
https://accounting-software.financesonline.com/c/e-signature…
https://learn.g2crowd.com/free-electronic-signature

Anyhow the one remaining convergence that would help would be eSignature and transaction processing.

Cheers
Ant

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