Leading e-signature company DocuSign (NASDAQ:DOCU) saw a significant jump in its first-quarter earnings, which fueled a rise in the price targets of a pool of analysts. A combination of remote and hybrid work is likely to cushion DocuSign’s future growth. Nonetheless, Wall Street analysts seem to be in a wait-and-watch mode due to macro pressures and rising competition, with most analysts preferring to be on the sidelines despite stellar Q1 results.
Earnings Recap
DocuSign reported upbeat Q1 earnings and better-than-estimated Q2 revenue guidance. It also launched a pack of new services, including Web Forms and ID Verification, to enhance its product portfolio, thereby contributing to top and bottom-line growth.
Remarkably, Q1 adjusted EPS jumped 89% to $0.72, driven by a 12% growth in revenue, with subscription revenue rising 12% as well. Billings expanded 10% year-over-year to $675 million. DocuSign added 45,000 customers during the quarter, expanding the paying user base to 1.4 million (up 13% year-over-year). Overall, the company boasts a user base of more than 1 billion.
Adding a silver lining to the company’s strengthening position, DocuSign added expertise through new hires, including an industry veteran CFO, product chief, and chief information officer.
While the company’s fiscal Q2 estimated revenue growth range of 8% to 9% beat expectations, it indicates a slowdown compared to Q1. Further, the fiscal Q2 billings growth range projection of flat to 1% is concerning, as it reflects considerable deceleration compared to the growth seen in Q1.
During the Q1 earnings call, DocuSign’s former CFO Cynthia Gaylor said that the company remains cautious about its outlook, given moderating expansion rates and slowing customer demand due to macro uncertainty and intense competition, “particularly in more basic e-signature use cases.”
Is DocuSign a Buy, Sell, or Hold?
Of the nine top Wall Street Analysts covering DocuSign, five assign it a Hold, two have a Buy rating, and two rate it a Sell. Overall, the stock scores a Hold consensus rating. The average price target stands at $65.43, implying 20.5% upside potential. Shares are down nearly 5% year-to-date.
Post the quarterly earnings, several analysts raised their price target for DOCU. Last week, Citigroup analyst Tyler Radke maintained his Buy rating on the stock and raised the price target to $76 from $73, stating that Q1 results “cleared the low bar and were better than feared.”
Unsure if the FY24 outlook will “prove conservative or at risk,” Morgan Stanley analyst Josh Baer reaffirmed a Sell rating on the stock, but raised the price target to $54 from $48 following an impressive Q1.
Meanwhile, Bank of America analyst Brad Sills raised the price target to $72 from $68 and maintained a Hold rating, pointing out the upside in Q1 billings from better execution on renewal deals. While Sills is optimistic that the company’s new products will help fight competition, he remains on the sidelines as he awaits better visibility.
Conclusion
Despite DocuSign’s impressive fiscal Q1 performance, Wall Street is sidelined on the stock due to macroeconomic challenges and growing rivalry. While analysts remain cautious, hedge funds have a Very Positive confidence signal on the stock. As per TipRanks’ Hedge Fund Trading Activity Tool, hedge funds increased their holdings in DOCU by 1.7 million shares last quarter.
