DocuSign: new CEO must help boost billings

In the bonfire of the cloud software-as-a-service companies, DocuSign is suffering more than most. Sales growth at the electronic signature software company has collapsed. Over the past 12 months the share price is down 80 per cent. Even Zoom, the stock best known for Covid-19 gains and losses, has not fallen that far.

Allan Thygesen, former executive at Google parent Alphabet, arrives to save the day as new chief executive. His appointment alone should steady the company following the former CEO’s abrupt departure in June.

Perhaps Thygesen’s prior experience can help DocuSign to explore new revenue streams too. DocuSign’s core e-signature service is still convenient for online transactions. But video conferencing group Zoom has expanded its services more broadly. Its latest additions are new email and calendar applications.

DocuSign has 1.28mn customers, adding 44,000 in the last quarter. But the jump in users during Covid-19 lockdowns was a one off. Last year billings, which includes deferred revenue, rose 37 per cent. This year they are forecast to grow just 7 per cent.

More worrying, the company’s services do not appear sufficiently compelling to encourage customers to spend much more. The net dollar retention ratio, which compares recurring revenue for subscriptions, has fallen from 124 per cent two years ago to 110 per cent. Former CEO Dan Springer took the company public in 2018 saying he felt “pretty good” about future profitability. It remains unprofitable.

In the last set of earnings, DocuSign reported $622mn in revenue, up more than a fifth on the previous year and beating expectations. But this still makes for a poor comparison to the previous year. The company trades at a free cash flow to price ratio of 14 times, down from 70 last November.

Rival Adobe’s recent purchase of design software company Figma for $20bn reduces the odds that it will make a similar bid for DocuSign. Subscriptions are steady and DocuSign has a reassuring $1.1bn cash on hand. But new CEO Thygesen needs to prioritise net retention rates before the share price has any hopes of recovery.