DocuSign (DOCU) stock forecast: Running out of steam?

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Since DocuSign’s (DOCU) inception in 2003, it has pioneered the use of eSignatures, removing the need for physical paper contracts. 

As the pandemic shuttered businesses, DocuSign’s eSignature service saw demand increase at breakneck speed. In 2020, the business grew by almost 50%, and DocuSign CEO Dan Springer described its technology as “a pillar of the ‘anywhere economy’ that lets people increasingly do anything in life and work from anywhere”. 

The firm now boasts over a billion users worldwide and 1.11 million paying customers. But with the disruption of the pandemic beginning to recede, will growth grind to a halt? Read on to see what lies ahead for the DocuSign stock forecast. 

DOCU stock analysis

DocuSign made its Nasdaq debut in 2018, with stock coming to market at $29 per share. Even before the pandemic hit, share price growth was strong, with 2019 seeing it almost double from around $38 to $76 over the course of the year.

2020 was a bumper year for the DocuSign share price, and it grew by over 160% between March 2020 and June 2020 as the start of the pandemic saw demand for eSignature services soar. The DocuSign share price continued to grow throughout 2020, and it ended the year trading at around $240. 

DocuSign stock, 2018 - 2022

The start of 2021 saw vaccines rolled out and hopes for the end of the pandemic rise. This brought fresh uncertainty for DocuSign investors, and in March 2021, the share price faltered after earnings report guidance moderated expectations for future growth. 

Yet these fears appeared premature, as June’s results release reported “new and existing customers adopting and expanding at record rates”, and 58% year-on-year revenue growth. 

The DocuSign share price recovered from its springtime lull, growing from around $188 on 11 May 2021 to $307 by July 2021 – an increase of over 63%. The DOCU share price went on to hit a record high of $310.05 in September 2021. 

November 2021 saw the share price plummet, as investors lost confidence in so-called stay-at-home stocks. Between 25 October and 29 November, the share price dropped from around $278 to $136, a fall of over 50%. 

Third-quarter results announced on 2 December beat analyst expectations, but investors were again concerned by guidance indicating decelerating revenue growth. The share price dropped from around $233 to $139 by day’s end – a dip of over 40%. 

In terms of technical analysis for DocuSign stock, this period saw the relative strength index (RSI) plummet to a low of 8.26. With an RSI value below 30 signalling that an asset is oversold and undervalued, this represented a sign that the DocuSign share price was due an upward correction.

According to TradingView, the RSI for DOCU is currently neutral at 43.84, suggesting the price is no longer expected to pull upwards. The DocuSign share price currently (15 February) sits at around $122.

Recent results

Although December’s Q3 results release precipitated a significant share price drop, the news was broadly positive. 

Revenue hit $545.5m, representing 42% growth year over year. This was overwhelmingly driven by subscription revenues of $528.6m, a 44% year-on-year increase. 

Earnings also exceeded analyst expectations, with DocuSign reporting earnings per share (EPS) of $0.58, beating DOCU earnings estimates of $0.46 per share.  

However, investors reacted nervously to revised Q4 revenue guidance of $557-$563m, which would represent a deceleration in DocuSign’s rate of growth.

“After six quarters of accelerated growth, we saw customers return to more normalised buying patterns,” said DocuSign’s CEO Dan Springer during the earnings call. 

“While we had expected an eventual step down from the peak levels of growth achieved during the height of the pandemic, the environment shifted more quickly than we anticipated,” he added. 

The death of paper?

But although the pace and urgency of DocuSign’s customer demand may well be slowing, the firm remains optimistic. “Even as the pandemic subsides and people begin to return to the office, they are not returning to paper,” said Springer in a Q3 earnings call.

According to analysts at Morgan Stanley, DocuSign is well positioned to benefit from the digitisation of business processes and the move away from physical paperwork. According to its US Technology Eating the World – Top Trends Post COVID-19 report, digital signatures represent a significant opportunity to capture a new revenue stream. 

“DocuSign’s eSignature and document management solutions fully align to the digital transformation trend.”

by Morgan Stanley

“DocuSign’s eSignature and document management solutions fully align to the digital transformation trend, and indeed it is one of the ‘lowest hanging fruits’ in the digital transformation category because of ease of technological implementation and very tangible cost savings of signing business agreements digitally, rather than the traditional paper-based method,” the report said

Major player

Analysts at Morgan Stanley highlighted DocuSign’s market share as another significant strength.

“DocuSign is the leading vendor in the market with around a 60% share of IDC’s eSign market, in an otherwise highly fragmented space, enabling the company to potentially sustain an elevated growth trajectory for an extended period of time,” the report said.

The company is currently the world’s number one e-signature service, and its large market share means it stands to grow even further by up-selling and cross-selling products to existing customers.

Third-quarter results reported a net retention rate of 121% (up from historical pre-pandemic levels of 112%-119%) as existing customers expanded their use of DocuSign’s product offerings. 

Panic buying subsides

Yet as the pandemic recedes, will customer growth keep pace?

Dan Romanoff, senior equity research analyst at Morningstar, lowered his fair value estimate for DOCU to $244 per share from $290 in December 2021, as pandemic demand began to unravel towards the end of last year.

“DocuSign noted customers were not buying with the same sense of urgency and as buying returned to normal, the sales organisation took its eye off the ball as it had to transition from urgent order taking during the depths of the lockdowns to lead generation, which had been neglected”, said Romanoff in a December note

Will the stay-at-home stock bubble burst?

Questions also remain over whether the disruptive innovation stocks that fared so well during the pandemic can continue to keep up momentum.

This was addressed in December 2021 by CEO and chief investment officer of ARK Invest, Cathie Wood. In a briefing note, she discussed the plummeting prices of several stay-at-home stocks, including DocuSign.

“In our view, the coronavirus crisis initiated a ‘rip and replace’ cycle in the $1.5trn enterprise communications space, the first major product replacement cycle since the emergence of the internet roughly 30 years ago,” Wood said in the market commentary

“We do not believe this shift was temporary. Stimulated by ‘stay at home’,  this transformation has shifted to ‘stay connected’ in a hybrid work world and ‘stay competitive’.”

Yet not all analysts agree.

DOCU stock forecast for 2022

According to data from MarketBeat at the time of writing (15 February), DocuSign stock was rated as a ‘hold’, although analysts differed in their ratings. The stock had nine ‘buy’ ratings, seven ‘hold’ and one ‘sell’.

DocuSign stock had an average analyst price target of $248.56 – a 105% upside on the current (15 February) share price. DocuSign stock price targets ranged from a low of $165 to a high of $360.

CHART

December’s Q3 results release triggered a flurry of analyst activity, but very little consensus.

Many analysts were bearish on the stock, with Wolfe Research, JP Morgan and Needham & Company all downgrading their DOCU ratings. Eight further analysts also lowered their price targets for the stock, with many of these representing significant reductions. 

Analysts at Morgan Stanley reduced their DOCU price target from $350 to $165, a drop of over 50%. Tyler Radke at Citigroup reduced his DocuSign price target from $389 to $231, a 41% decrease, and Patrick Walravens at JMP Securities trimmed his price target from $320 to $307, a smaller 4% drop. These revised price targets still, however, remained above the report date share price. 

Some analysts were less optimistic, with December seeing six analysts reduce their DOCU price target below the report date share price. The most significant downside came from UBS, which reduced its DocuSign share price forecast from $350 to $170: a 51% drop and a 27.29% downside on the report date share price.

The new year seems to have heralded greater optimism, however, with 6 January 2022 seeing Piper Sandler’s Rob Owens boost his DOCU price target from $175 to $200, a 38.73% upside on the report date share price. 

DOCU stock analyst ratings and price targets, December 2021 - January 2022

It’s worth noting that analyst predictions are frequently wrong, and forecasts are no substitute for your own research. Always perform your own due diligence before investing, and never invest or trade money you can’t afford to lose. 

DocuSign (DOCU) stock forecast: Looking ahead to 2030

Looking to the longer term, algorithm-based forecasting service WalletInvestor rated DocuSign a “bad long term investment”, as of the time of writing (15 February).

According to WalletInvestor’s algorithmic DocuSign stock predictions, the share price was forecast to decline over the coming 12 months, dropping to $90.53 by February 2023. WalletInvestor’s forecasts then saw the share price hitting $69.78 by February 2024, $51.86 by February 2025, and $29.15 by February 2026.

According to WalletInvestor’s DocuSign 5 year forecast, the share price can tip below its IPO price of $29 per share in April 2026, and fall to $6.60 by February 2027.

Note that algorithm-based projections can be inaccurate as they are based on past performance, which is no guarantee of future results. 

Forecasts should never be used as a substitute for your own research. Once again, always perform your own due diligence before investing, and never invest or trade money you can’t afford to lose. 

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