DocuSign's Era Of 'Modest Market Acceptance' Is Over, KeyBanc Says In Bullish Initiation

The bullish case for Docusign Inc DOCU, a provider of electronic signature technology and digital transaction management services that went public in 2018, can now be made after years of "modest market acceptance," according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Rob Owens initiated coverage of DocuSign with an Overweight rating and $59 price target.

The Thesis

DocuSign is performing well in targeting the $25-billion market opportunity for digital signatures, Owens said in a Sunday initiation note. 

Net customer additions to DocuSign's enterprise and commercial cohort — around 85 percent of revenue — have improved each year since fiscal 2016, with no signs of reversing throughout 2019, the analyst said.

As the company expands its portfolio, it can generate incremental sales to the platform's more than 300 use cases, as existing customers generate 70 percent of new subscription revenue and net retention rates are trending near 115 percent, according to KeyBanc. 

DocuSign's cash flow as a percentage of total revenue improved from 1.5 percent to 8 percent over the past trailing 12-month period and have grown at a 46-percent compounded annual growth rate since 2016, Owens said.

During the past year, revenue grew at 36 percent, which drove operating leverage as sales growth exceeded new growth investments over the year, the analyst said. 

Price Action

DocuSign shares were down 1.07 percent at $48.05 at the time of publication Monday. 

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