DocuSign (NASDAQ:DOCU) Exceeds Q2 Expectations, Next Quarter’s Growth Looks Optimistic
E-signature company DocuSign (DOCU) reported results ahead of analysts’ expectations in Q2 CY2024, with revenue up 7% year on year to $736 million. The company expects next quarter’s revenue to be around $745 million, in line with analysts’ estimates. It made a non-GAAP profit of $0.97 per share, improving from its profit of $0.72 per share in the same quarter last year.
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DocuSign (DOCU) Q2 CY2024 Highlights:
- Revenue: $736 million vs analyst estimates of $727.8 million (1.1% beat)
- Adjusted Operating Income: $237.2 million vs analyst estimates of $202 million (17.4% beat)
- EPS (non-GAAP): $0.97 vs analyst estimates of $0.81 (20.4% beat)
- Full year billings guidance of $3.01 billion slightly raised but missed missed expectations
- The company slightly lifted its revenue guidance for the full year to $2.95 billion at the midpoint from $2.93 billion
- Gross Margin (GAAP): 78.9%, in line with the same quarter last year
- Free Cash Flow Margin: 26.9%, down from 32.7% in the previous quarter
- Billings: $724.5 million at quarter end, up 1.9% year on year (slight beat)
- Market Capitalization: $11.75 billion
"Docusign continued its evolution with improved business stability and increased efficiency, resulting in record operating profit," said Allan Thygesen, CEO of Docusign.
Founded by Seattle-based entrepreneur Tom Gonser, DocuSign (NASDAQ:DOCU) is the pioneer of e-signature and offers software as a service that allows people and organisations to sign legally binding documents electronically.
Document Management
The catch phrase "digital transformation" originally referred to the digitization of documents within enterprises. The growth of digital documents has spurred an explosion of collaboration within and between businesses, which in turn is driving the demand for e-signature and content management platforms.
Sales Growth
As you can see below, DocuSign’s 16.8% annualized revenue growth over the last three years has been sluggish, and its sales came in at $736 million this quarter.
DocuSign’s quarterly revenue was only up 7% year on year, which might disappoint some shareholders. However, its revenue increased $26.39 million quarter on quarter, a strong improvement from the $2.75 million decrease in Q1 CY2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter’s guidance suggests that DocuSign is expecting revenue to grow 6.4% year on year to $745 million, slowing down from the 8.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 5.5% over the next 12 months before the earnings results announcement.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
DocuSign has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cash cushion. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 32.1% over the last year.
DocuSign’s free cash flow clocked in at $197.9 million in Q2, equivalent to a 26.9% margin. This quarter’s cash profitability was in line with the comparable period last year but below its one-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
Over the next year, analysts predict DocuSign’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 32.1% for the last 12 months will decrease to 28.6%.
Key Takeaways from DocuSign’s Q2 Results
The quarter was solid, with billings, revenue, and adjusted operating profit ahead of Wall Street's expectations. However, full year billings guidance was slightly below. This was a mixed quarter, and the stock traded down 3.3% to $55 immediately following the results.
So should you invest in DocuSign right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
