Is It Finally Time to Dump DocuSign Stock?
Disruptive tech companies usually follow the same journey. It starts with strong revenue growth which represents something being disrupted and market share being captured. Then, they establish some gross margin cadence which reflects the future potential for profitability. Finally, they start realizing positive operating cash flows which pave the way from growth to value. A company with high gross margins (80% or higher) and positive operating cash flows that sells products/services to over a million clients is very attractive. Why? Because they’re a sustainable franchise with established sales channels that can be used to upsell and cross-sell. That’s the appeal of today’s company, DocuSign (DOCU).
Problems With DocuSign Stock
You cannot have disruption without strong revenue growth. What’s strong? We consider double-digit growth to be a minimum, which is why DocuSign has us worried. It’s been almost two years since we published a piece titled, Is It Time to Worry About the Slowdown in DocuSign Stock? That was followed by more concerns voiced last year around dismal SaaS metrics, three of which we said were most important to watch. From last year’s piece:
- Revenue growth: Later this year DocuSign will announce next year’s guidance, perhaps at the same time they release this year’s actuals. Any disappointments here will underscore our concerns.
- Net retention rate: Has now dropped for eight quarters in a row. This is our biggest concern – existing customers find increasing spend with DocuSign as optional.
- # of Clients over 300K: Large clients
