DocuSign Inc. exceeded expectations with its headline results on Thursday, but its stock appears poised to succumb to this week’s software curse.
Shares of DocuSign DOCU, +2.66% , which makes software that enables companies to secure digital signatures on legal documents, fell 21% in after-hours trading Thursday after the company issued its first-quarter earnings report. The sharp plunge reminded one analyst of other post-earnings drops from the world of software: Both Cloudera Inc. CLDR, -40.80% and Pivotal Software Inc. PVTL, -0.28% saw their stocks sink about 40% after disappointing earnings reports in recent days, while Nutanix Inc. NTNX, -0.71% saw its own double-digit drop.
“Bulls were hoping for a beat-and-raise quarter and instead you got in-line numbers with some soft spots around the edges,” Wedbush analyst Daniel Ives told MarketWatch. “Combined with what we saw out of Cloudera, Pivotal, Box BOX, +3.46% and Nutanix, that caused concern.”
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The “softness” Ives mentioned came on the billings front, as DocuSign grew the metric by 27%, a lower rate than in previous quarters. Management attributed the performance to an elongated sales cycle, which Chief Executive Dan Springer said reflected the company’s shift from selling e-signature tools to marketing a broader suite of services that helps businesses manage contracts.
The company completed its acquisition of SpringCM last fall and has been using assets from that acquisition to push tools that enable companies to better prepare legal documents and then sort through various contracts once they’ve been signed.
Springer told MarketWatch that he viewed the billings metric as a “red herring” given that the company’s other metrics were stronger. “Sometimes, since billings is the only indicator with predictive power, it gets a little more attention than its overall impact,” he said.
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To Springer, the billings performance is actually “a good thing” as it signals that companies may be looking more deliberately at the company’s more varied services rather than just the e-signature product for which the company got its name. He said that businesses are now involving more executives in purchase discussions, whereas companies that only used DocuSign for signatures on contracts may have just sent the legal team.
Springer argued that the company may be taking more time to get each deal done, but that it’s also doubling its total addressable market to about $50 billion by expanding beyond signatures.
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DocuSign posted earnings of 7 cents a share for the quarter on revenue of $214 million. Analysts surveyed by FactSet had been modeling 5 cents a share in adjusted EPS and $208 million in revenue.
For the current quarter, which ends in July, DocuSign projects revenue of $218 million to $222 million, whereas the FactSet consensus calls for about $220 million.
DocuSign shares were up 37% so far this year as of Thursday’s close, compared with a 13% gain for the S&P 500 SPX, +0.61% .
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