Shares in the e-signature market leader, DocuSign, have tumbled more than 60% from its highs — will there be solace in its Q4 earnings?
DocuSign (NASDAQ: DOCU) has one of the largest market opportunities of any software company around. It strikes a perfect balance between innovation, market growth, monopolistic advantages, and partnerships with some of the world’s largest companies. We’ll be watching closely to see if these core competencies keep shares afloat as we approach the company’s Q4 earnings.
DocuSign’s market share and competitive advantage
DocuSign has no shortage when it comes to competition. Adobe, VeriSign, and Dropbox’s HelloSign — the list goes on — and they’re all competing for a share of this market. But, according to DocuSign’s data at least, it’s winning. It’s estimated to have more than 70% of the total e-signature market in its grasp — that’s comparable to Google’s tally of the search market, which is in the low 90s in percentage terms.
A monopolistic advantage like this is exactly what we look for in a company isolating a growth market, and although DocuSign might not have the resources that competitors like Adobe do, it’s specializing in a single segment, adding more and more functionality to its services to consistently stay ahead of the competition.
Just like search is akin to “I’ll Google it”, signing documents electronically is becoming akin to “I’ll send you over a DocuSign.”
What to expect from DocuSign’s Q4 earnings?
Taking these considerations into account, it’s hard to think that DocuSign’s growth will slow enough to worry investors. Changing trends in relation to remote work are here to stay and DocuSign will be one of the main beneficiaries.
Dampened projections are also weighing on markets, but DocuSign should be able to navigate more efficiently than those in unrelated industries. Supply chain issues and inflationary concerns affecting other companies’ guidance will likely be of little concern to a company that is digital-first. While we can’t predict where the bottom will be for high-flying growth stocks of this nature, the long-term viability for this business looks bright.
Is DocuSign a good investment right now?
It’s very difficult to say that any of the alternatives are a better investment than DocuSign. It currently operates in a market estimated to be worth $3 billion and $4 billion, but researchers have projected this figure to grow to as much as $60 billion by 2030. When taking its advantages into consideration, as the market grows, so too will DocuSign’s revenue, even if it does lose market share. But even floating the possibility of a loss of market share, retention rates suggest otherwise. DocuSign’s dollar-based net retention rate is 125%. This means that customers are not only staying with DocuSign because of its sticky business model, but they’re actually increasing the amount they spend on DocuSign’s services over time too.
The extension of DocuSign’s partnership with software-as-a-service (SaaS) leader Salesforce in late 2021 is also an encouraging sign. It adds credibility to DocuSign’s solutions as well as signifying the relevance of its existing, and growing network. This development is opening up the cross-functionality of DocuSign services to Salesforce’s 150,000+ customer base which features some of the largest companies in the world.
Key tech partnerships like this along with its integration with the largest cloud providers in the world — Microsoft, Google, Apple, Oracle, SAP, and Workday — suggest DocuSign’s runway for growth is still a long shot away from maturity and a top pick in the SaaS industry.