'A Massive Green Field Growth Opportunity': Wall Street Weighs In On DocuSign

Docusign Inc DOCU shares soared 20% on Friday after the company reported second-quarter earnings and blew third-quarter guidance expectations out of the water.

DocuSign missed second-quarter EPS estimates but beat on revenue. Friday’s big move was likely in response to the company’s third-quarter revenue guidance of between $237 million and $241 million, far exceeding consensus analyst estimates of $231.9 million. DocuSign’s full-year fiscal 2020 revenue guidance of between $947 million and $951 million also came in well ahead of consensus estimates of $920.3 million.

Several analysts have weighed in on DocuSign’s mixed quarter and huge guidance numbers. Here’s a sampling of what they’ve had to say.

Inflection Point

Morgan Stanley analyst Stan Zlotsky said the earnings report is a clear indication DocuSign is getting back on track.

“Big beat in Q2, Q3 billings guidance ahead of consensus expectations and tough comps, and full year billings outlook range moving up should all assuage investor fears of a protracted deceleration at DocuSign,” Zlotsky wrote in a note.

Wedbush analyst Daniel Ives said billings and revenue growth were the highlights of the quarter.

“We believe the company's e-signature value proposition and unmatched partner channel/API network this quarter illustrated why this company is in the early innings of a massive green field growth opportunity set to play out over the next 12 to 18 months,” Ives wrote.

KeyBanc analyst Rob Owens said the second quarter marks an inflection point for DocuSign’s business.

“A positive inflection in revenue and billings growth is the culmination of increased momentum in e-signature, ramp in Agreement Cloud sales, and additional positive factors including its new federal contracts and strong growth in high ACV customers,” Owens wrote.

Valuation A Concern

Bank of America analyst Kash Rangan said the strong report reaffirms DocuSign as the market leader in electronic signatures, but the stock’s steep valuation is keeping him on the sidelines.

“Best in class SaaS companies (CRM, NOW, WDAY) at $1bn in revs have shown higher rev growth with significantly higher OM (10-14%) + FCF margins (11-23%),” Rangan wrote.

JMP Securities analyst Patrick Walravens said DocuSign shares still look cheap trading at a projected 2020 EV/revenue multiple of just 9.2 times.

“We believe DocuSign warrants a premium valuation due to its strong competitive position, attractive financial profile and impressive leadership team,” Walravens wrote.

Ratings And Price Targets

• Morgan Stanley has an Overweight rating and $67 target.
• Bank of America has a Neutral rating and $62 target.
• JMP has a Market Outperform rating and $70 target.
• Wedbush has an Outperform rating and $65 target.
• KeyBanc has an Overweight rating and $65 target.

The stock traded around $54.77 per share at time of publication.

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