Shares of DocuSign Inc. crashed in extended trading today after the company missed expectations on earnings and its losses widened from a year ago.
The company reported a net loss in the first quarter of $27.4 million, down from a loss of $8.3 million in the same period last year. Earnings before certain costs such as stock compensation came to 38 cents per share on revenue of $588.7 million, up 25% from a year ago.
The results were mixed, with Wall Street guiding for earnings of 46 cents per share on revenue of $581.8 million.
Although DocuSign did well to grow its revenue by 25%, investors these days are laser-focused on profitability and did not like what they saw. DocuSign’s stock fell more than 23% in after-hours trading, having lost more than 3% in the regular trading session today. Its share price is now down 43% from the start of the year.
DocuSign Chief Executive Dan Springer (pictured) said the company delivered solid results, notably adding almost 67,000 new customers in the quarter and growing its total to more than 1.24 million. “With over a billion users worldwide, the proven value of our products, and the significant opportunity we have ahead of us, we’re confident in our ability to successfully navigate the challenges of a dynamic global environment,” he added.
DocuSign sells tools that enable businesses and individuals to sign documents electronically without meeting anyone face-to-face. It also sells software that automates the filing of contracts over the internet. Not surprisingly, the COVID-19 pandemic was good to DocuSign as it benefited from thousands of businesses switching to online transactions.
However, the company has seen its pace of business slow in recent quarters as normality returns and more people do business face-to-face again. Springer told analysts on a call that having moved to adjust its sales approach to try to drum up more demand for its products, the company is now taking steps to fix go-to-market challenges.
For now, Springer said DocuSign isn’t planning any staff cuts, but he said the company will be scaling back on new hires in an attempt to “appropriately balance growth and profitability.”
DocuSign Chief Financial Officer Cynthia Gaylor told analysts that the company had experienced some macroeconomic challenges during the quarter. For instance, the war in Ukraine resulted in some deals stalling or getting delayed amid the economic uncertainty it caused. As such, DocuSign’s expansion rate, which reflects the pace of existing customers increasing their spending on the company’s products, is lower than before, Gaylor added.
One way DocuSign is looking to turn things around is by targeting smaller businesses. During the quarter it unveiled a new contract lifecycle management offering called CLM Essentials that makes it easier for small firms to create, manage, securely store and execute contracts. It also includes a document generation template builder for creating contracts on the fly.
DocuSign is optimistic about the coming quarter. It offered revenue guidance of between $600 million and $604 million, somewhat ahead of Wall Street’s consensus of $601.7 million. The full-year picture doesn’t imply a beat, though, as DocuSign currently sees total revenue of $2.47 billion to $2.48 billion compared with Wall Street’s forecast of $2.479 billion.
Holger Mueller of Constellation Research Inc. said DocuSign deserves some kudos for providing guidance for both the next quarter and the full year, as that’s something many companies shy away from nowadays. He believes the company is a bit unlucky too, considering it had a great quarter in terms of revenue growth.
“Unfortunately DocuSign’s costs grew faster than revenue, with operating expenses increasing by over $100 million compared to last year,” Mueller said. “The result is that DocuSign lost 10 cents per share more than it did a year ago. The management will need to bring its costs down and make sure its revenue is on target to manage investor’s expectations better in the coming quarters.”