U.S. Stocks: E-Signing boom propels DocuSign into ranks of year’s best stocks

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September 24, 2020 10:49 AM

The application software company has seen a surge in demand over the past several months, as the shift to remote work makes traditional means of doing business more cumbersome.

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Bloomberg: The pandemic has pushed an increasing number of companies to operate more online than they ever have before, and few have benefited from this trend as much as DocuSign Inc.

The application software company has seen a surge in demand over the past several months, as the shift to remote work and social distancing makes traditional means of doing business, including the simple signing of documents, more cumbersome. And as with other pandemic winners, including e-commerce companies and streaming video, the change is widely expected to outlast the impact of the virus itself.

“It’s always been our thesis that paper and pens will ultimately be replaced by e-signature technology, but ever since the work-from-home shutdown started, we could see a substantial uptick in demand across pretty much all our major verticals,” said Michael Sheridan, DocuSign’s president of international. “But even beyond the pandemic, people are recognizing the need and benefit of these services, and we don’t think they’ll go back to the old ways.”

Sheridan, who spoke with Bloomberg News by phone, previously served as DocuSign’s chief financial officer. Bloomberg Intelligence wrote the recent change in role “highlights the company’s growth prospects amid an expanding suite of products and ability to scale.”

Those growth prospects were seen in the company’s second-quarter results, where revenue spiked 45%, its fastest pace on record, according to data compiled by Bloomberg. Billings grew more than 60% from the year-ago period, prompting Deutsche Bank to write that billings, net retention rate and net new customer additions reached “(yet again) the highest levels we have seen ever, or in years.”

Wall Street expects this trend to continue. DocuSign’s third-quarter revenue is expected to grow 45% to $361.5 million, a forecast that has risen by 7.6% over the past week, according to data compiled by Bloomberg. Growth above 30% is expected to persist for at least three quarters beyond that.

These trends have contributed to DocuSign being among Wall Street’s biggest 2020 success stories. The stock is up nearly 200% this year, making it the fourth-biggest gainer in the Nasdaq 100, behind Zoom Video, Tesla and Moderna. Even with a recent drop of about 20% from a record close set at the start of September, shares have more than tripled off a March low.

Shares rose 3.4% on Wednesday.

The advance has raised concerns over the stock’s valuation, according to Mike Venuto, chief investment officer of Toroso Investments, which counts DocuSign among its holdings.

“The movements in these stocks has been more extreme than you would expect,” he said in a phone interview. “In a vacuum, the valuation is difficult to accept, but traditional metrics are impossible in an environment like this. In terms of the trend, there’s no putting the genie back in the bottle, and you might be willing to pay a robust valuation for exposure to a tectonic shift in how business will be done. I mean, who wants to go back to printing stuff out?”

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