Shares of DocuSign (DOCU) have gotten clobbered over the past few months, falling more than 65% in six months. The shares are down 34% year to date, compared to an 8% decline for the S&P 500 index. The stock has also plummeted some 56% over the past twelve months, while falling 68% since reaching its all-time high of $314.

The e-signature specialist is set to report fourth quarter fiscal 2021 earnings results after the closing bell Thursday. Enabling individuals and businesses the ability to digitize an agreement process has been a key factor in DocuSign’s rise during the pandemic as enterprises shifted to remote work. Aside from being the leader in electronic signatures, DocuSign aims to service the entire deal process, including supporting any action that is required once the agreements have been signed.

All told, DocuSign is well-positioned to capture the digitalization of the document lifecycle. However, with the pandemic being less of an issue, the market has grown concerned about DocuSign’s ability to maintain its impressive growth, particularly as it relates to revenues, platform sign-ups and free cash flow. The company couldn’t dispel these concerns as it guidance last quarter called for year-over-year billings growth of just 23%. The billings metric is a leading indicator of revenues.

Investors read between the lines, and noticed there was a noticeable gap between billings and revenues, which could imply that the company is not growing its customer base at the rate it did previously. The company has performed strongly over the past few quarters and was, indeed, facing much tougher comparisons. And this comes in the face of increased competition from the likes of Adobe Sign (ADBE) and Dropbox (DBX). Nevertheless, to reverse the negative downward trend in the stock price, DocuSign will have to issue strong revenue growth forecast for next quarter and fiscal year 2022.

In the three months that ended January, the San Francisco, Calif.-based company is expected to earn 48 cents per share on revenue of $561.62 million. This compares to the year-ago quarter when earnings were 37 cents per share on revenue of $430.90 million. For the full year, earnings are expected to rise 118% to $1.97 per share, while full-year revenue of $2.09 billion would rise 43.6% year over year.

As strong as these quarterly projections appear for DocuSign, it is clear that the company has become a victim of its own success. Boasting hundreds of millions of users, with more than 1.1 million paying customers, DocuSign has enjoyed rapid growth. The management of the company believes the total addressable market as of today to be about $50 billion. That’s a long runway for growth given that full-year revenue is projected to be $2.09 billion.

In the third quarter, revenue of $545.46 million increased 42% year over year, topping Street forecast by $14.21 million. Q3 adjusted EPS of 58 beat estimates by 12 cents. The company reported 44% year over year jump in subscription revenue which came to $528.6 million. The stock was under pressure as the subscription revenue showed a deceleration from the prior quarter growth rate of 52%. It also didn’t help that the company’s Q4 guidance was seen as disappointing.

That said, Q3 with free cash flow was coming in at $90 million compared to $38.1 million in the same period last year, DocuSign is executing on its strategy. If DocuSign can improve on these results on Thursday and outline its path towards sustained profitability, the stock will rebound.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source: Nasdaq

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