Is DocuSign a Good Investment? Why the Stock Soared in June 2021 and What the Future Holds (ANALYSIS)

Last Updated on June 6, 2021

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DocuSign has been around for 18 years, a long time in Silicon Valley. It was one of the pioneers in electronic signatures (eSignatures), solutions that help companies manage business arrangements across different devices. DocuSign now has more than half a million customers and hundreds of millions of users in 180 countries.  Is it a good investment? It spent Friday, June 4, heading up dramatically, and this particular move may be something more than a one-day wonder. It may be (excuse the pun) a signature.

Some History

DocuSign began selling eSign tech in 2005, after acquiring key patents. At that time,  zipForm, now known as zipLogix, a real estate transaction manager, integrated DocuSign into its virtual real estate forms. The system was tested by mock trials that featured real attorneys and judges thrashing out the admissibility of DocuSign contracts. These tests highlighted the encrypted nature of the audit logs of signature events and the tamper-proof nature of contracts entered into in this way. Signatures and documents are  encrypted and a unique hash is created for each. If a signed document is tampered with in any way, the hash will no longer match the information later checked, the hash will not match the information stored by DocuSign.

DocuSign took another big step forward in June 2010, when it added support for iPhone, iPad, and phone based user identification. By the end of that year, the “software as a service” based electronic signature market was firmly established and DocuSign was (at 73%) a huge part of it.

Signatures and Subscriptions

By April 2012 the company had entered into partnerships with Salesforce.com, Google Drive, and — the holy grail — PayPal.

Not only are DocuSign’s services a natural fit for the increasingly virtual business world, but there is a “green” case to be made for them. Customers no longer have to print out paper documents for the purpose of signing documents. This has saved billions of pieces of paper (and an incalculable number of trees). It also lessens the need for oil-based inks.

In April 2018 the company went public (Nasdaq: DOCU). Even in that pre-pandemic day, Wall Street liked (and it still likes) the fact that 96% of the company’s top line comes from subscription fees: that is seen as a reliable stream of revenue. In 2019, DOCU’s first year as a public company, revenues were $701 million. The following year they would be $974 million.

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Is DocuSign a good investment? How to weigh the pros and cons. Photo credit: Shutterstock.com

Pandemic and Price

Although the demise of pen-on-paper signatures was well underway throughout the period 2005-18 chronicled above, that demise was surely hastened, and investor interest in the newer methods of sealing a deal, by the Covid19 pandemic.  In the twelve month period ending in 2021, DocuSign acquired hundreds of thousands of new customers. The price of its stock rose accordingly. Around the time Covid was first becoming a household name in the United States, DOCU’s stock was selling for under $100. But after a year of Covid’s ubiquitous impact, this February, DOCU surpassed the $260 mark. 

During the course of the pandemic, DOCU released the DocuSign Analyzer, a SAAS product for contract analytics powered by artificial intelligence. It was favorably received by analysts.

Then: the test. Around the time DOCU hit $260, the news about Covid turned positive in the United States, and in much of the developed world. The vaccines were working well, the shots had found their way to the arms of large portions of the population, and numbers both of incidence and mortality were sharply down. Would people go back to face to face meetings? And to printing out forms and signing them with pens? Is there a new normal or is there simply a return to the old normal?

Stock Soars on June Four

On such worries, DOCU fell from its peak, and hit a recent low of near $180 early last month. For some, that looks like a buying opportunity, and the price began to rise again. It was holding steady near $200 in the final days of May.

Then came Friday, June 4. DocuSign reported excellent results for the first quarter, and the price soared.  It had closed at $194.75 Thursday. Immediately upon the opening Friday, it was at $220. And it continued to rise for the rest of the day, closing at $233.74, up 20 percent. Why? Within the quarterly report, although it was great news that the company beat quarterly earnings estimates, reporting earnings of 44 cents per share, the cash numbers were the blockbuster.  Operating cash flow increased rose 129 percent, free cash flow increased 275 percent.

Perhaps more importantly, the numbers may have catalyzed a new sentiment: the old normal will not simply revert. Covid created huge changes in the way people and companies do business. And electronic signatures are among them.  If that is so, then DocuSign isn’t a good trade. It’s a good investment.