Docusign Falls Despite Earnings, Sales Beat

Docusign Inc DOCU reported its third-quarter results, which came in better than expected and management's fourth quarter and full year sales guidance also beat expectations.

The Analysts

JMP Securities' Patrick Walravens maintains a Market Outperform rating on Docusign with an unchanged $68 price target.

Wedbush's Daniel Ives maintains at Neutral, with a price target lifted from $45 to $48.

JMP: Premium Valuation Justified

Docusign not only reported a top-and-bottom line beat, but revenue growth of 37 percent marks an acceleration from 33 percent in the prior quarter and beat the consensus estimate of 33 percent, Walravens said in a note. Year-over-year billings growth of 40 percent was nearly double the 23 percent the Street expected and also accelerated from 32 percent in the prior quarter.

Walravens' full year 2019 non-GAAP EPS estimate was lifted from a loss of 6 cents per share to positive 5 cents per share on expectations for 34 percent revenue growth.

Shares of Docusign are trading at seven times calendar year 2020 EV/revenue and the research firm's $68 price target is based on a multiple of 12 times, which is a premium to the peer group average of seven times for SaaS companies. The stock's premium valuation is warranted given the company's strong competitive position, an attractive financial position and backed by a solid leadership team.

Wedbush: Major Opportunity Ahead

Docusign's third quarter signals the company continues to gain a reputation as being the "go-to-vendor" among enterprises of all sizes for e-signature solutions, Ives said. While the competitive landscape features competitors that are much larger in size, Docusign boasts "unparalleled brand awareness" which represents a competitive advantage.

Docusign has a large opportunity and could show strong billings and revenue growth, the analyst said. A bullish stance on the stock can't be justified at this time, however, due to the absence of any international success, recent management turnover and a more competitive environment in fiscal 2020 and beyond.

Price Action

Shares of Docusign were trading lower by 6 percent at $39.35 Friday afternoon.

Related Links:

DocuSign Posts A Positive Q2 Print, But BofA Stays Neutral On Limited Upside Projections

Analysts Initiate Coverage Of DocuSign Following IPO Quiet Period

Photo courtesy of DocuSign.