Sign Up for DocuSign on Pullback

Jon Markman

DocuSign ((DOCU) -Get Report) reported blow out earnings Friday, and the stock is getting clobbered as traders bet the work-from-home trade is over. Longer-term investors should use this weakness to accumulate shares.

Revenues at the San Francisco, Calif.-based company rose 45% to $342 million. Billings, a key metric for future growth, surged 61%, to $405 million, as more companies embrace the digital platform.

That’s the story traders should be concerned with.

Something really big is happening in the corporate world: Enterprises are moving employees out of central offices. While this larger trend accelerated during the global pandemic, investors should not lose sight of why this is happening. Companies are transitioning to digital processes because it saves money.

Cloud computing, made popular in the early 2000s, allowed enterprises to run key processing operations off premise. That modularity meant employees could be located anywhere, creating the opportunity to save enormous amounts on office space.

Large enterprises are expected to invest $249 billion ramping up digital infrastructure through 2020, according to a report from Gartner. For comparison, the global IT research firm notes that firms spent only $182 billion in 2018.

Most of that spend, $110 billion, will be devoted to cloud application services, or software-as-a-service (SaaS). These applications, like DocuSign, run natively in the cloud and let users access key programs with a simple internet connection.

DocuSign makes software to bring contractual agreements into the digital era.

Founded by Tom Gosner in 2003, the big idea was to disrupt ink and paper contracts, a process that had not changed in centuries. Electronic signatures, Gosner believed, would make processing faster, cheaper and ultimately more accurate. And it has.

The company claims that clients save about $36 per digital document processed through DocuSign, versus paper. The average turnaround time is 9 days faster, with 82% of DocuSign deals completed in only one day. Customers have flocked to the platform.

Today DocuSign has 500,000 paying customers across 180 countries. Its Agreement Cloud platform has been used hundreds of millions of times to help users sign legally binding documents, and is embedded into workflows at 70% of the top global technology companies, 90% of the world’s leading pharmaceutical firms, and 66% of global financial services businesses.

Additionally, the company is making huge progress with federal, state and local government agencies. Contractors, employees and taxpayers can digitally sign documents from almost any electronic device, at any time, from anywhere in the world.

For most forward-thinking businesses, DocuSign is a verb, synonymous with this versatility.

DocuSign shares reflect the strong business momentum. Share have risen 190% in 2020, even with the big decline Friday.

That weakness is the result of a misconception. Investors perceive that DocuSign was merely in the right place at the right time, and that big payoff has passed.

The company clearly benefitted from employees working from home during pandemic. However, it’s folly to bet transformative digital strategies will abate because COVID-19 infections are slowing. The process is about corporate efficiency. It’s about the bottom line.

DocuSign is now the e-signature partner of choice to the biggest and most important brands. It’s a big competitive advantage in a sector that is growing fast now, and will continue to grow quickly in the future.

This is what investors are getting wrong.

A poll from Gallup found that three in five of white-collar workers want to continue to work from home, even after the global pandemic subsides. Employees now perceive working from home as a benefit. Employers are listening.

Google, ((AMZN) -Get Report) and Facebook ((FB) -Get Report) have extended working from home into late fall. Others, like Twitter ((TWTR) -Get Report) and Shopify ((SHOP) -Get Report), a Canadian ecommerce software provider, are offering permanent home-based employment.

Home based workers are more productive and they offer a way out of potentially expensive legal liabilities arising out of workplace infections.

These benefits showed up in Friday’s earnings report. Revenues and billings at DocuSign are surging.

Shares trade at 40x sales but this will look inexpensive in the quarters ahead. This is the buying opportunity longer-term growth investors have seeking. Buy DocuSign in the $200 range. The stock could easily trade at $300 during the next 12 months based on sale growth momentum.