During the early days of the pandemic, I had to have a document notarized. I met the notary at my local bank office. She took my document and my ID through a crack in the door. She looked it over as I waited outside. Eventually she passed the document and my license back to me; I signed and returned it to her for her stamp. All of this would have been so much easier online.
DocuSign seems like a slam dunk of a company. It helped define the category of digital signing, an idea that came into full focus during the pandemic when meeting in an office became impossible, but business still had to be done. And yet, the company’s stock has been in free fall since 2021 when it peaked at over $300 a share. Today it’s under $60.
To be fair, DocuSign is one of many SaaS companies that has seen their value plunge since the market topped out at the end of 2021, but it’s solving a real problem in a world that is still stuck in paper workflows. Why, then, is it suffering the same fate as companies that could be considered less business critical?
From the outside, the company’s struggle to retain value and grow seems a bit baffling given its role in digital transformation. Sure, the economy has slammed a lot of enterprise SaaS companies, but there’s probably more to it than a general tech slowdown could explain. It made the move to a new CEO when it brought in former Google ad exec Allan Thygesen last year. That was a sign perhaps that things were amiss.
More recently, the company announced at its earnings call earlier this month that CFO Cynthia Gaylor was stepping down after 4.5 years with the company in various roles.
DocuSign had a very reasonable fiscal 2023, its business year that ended Jan. 31, 2023. Revenue in its fourth quarter rose 14% to $659.6 million compared to the year-ago period, while in the full fiscal year its revenues rose 19% to around $2.5 billion. While those growth numbers did not set the world alight, the company did report unadjusted net income in the final quarter of its most recent fiscal year, and reasonable growth in adjusted profit during the full year.
The issue that DocuSign faces is that its growth has slowed and is continuing to slow. After peaking a few years back at 125%, the company’s net dollar retention has slipped to 107% in its most recent quarter. DocuSign expects to generate around $2.7 billion in total revenue this fiscal year, which works out to a very slim 8% growth rate give or take.
Holger Mueller, an analyst at Constellation Research, says it’s a mystery why DocuSign hasn’t grown more quickly. “They struggle at expanding their use cases in the industry. They should be growing much more. Documents are the core of digital transformation,” he told TechCrunch+.
Jason Lemkin, founder and CEO at SaaStr, says the company is suffering from a post-pandemic hangover when usage took off. He started his career in this field by launching EchoSign, which he sold to Adobe in 2011.
“Overnight everyone needed to e-sign, like Zoom, and those customers are in many cases churning, and it’s 100% understandable. Like the yoga studio that didn’t need Zoom anymore.” He says that like Zoom, DocuSign experienced unsustainable growth and reached market saturation years ahead of schedule.
One way that this has been described is a demand pull-forward. Companies that saw a great acceleration in their growth or performance during the pandemic did not reach growth rates that were long-term viable. Instead, they wound up snagging future demand all at once, boosting their trailing results but utterly deflating their future growth rates. Zoom, for example, reported 4% growth in its most recent quarter, beating expectations.
That has left the company stuck in a kind of growth purgatory in recent years. While it’s still a $2.5 billion company in revenue terms, it continues to struggle to find a consistent market. In a recent analysis by William Blair, the firm found that DocuSign was the only public company solely focused on contract lifecycle management, which it defines as:
Contract lifecycle management helps companies create and manage agreements by overseeing processes such as contract creation, negotiation, and management. At its core, CLM platforms help businesses automate more workflows and improve their visibility into the contracting process.
In other words, it’s digitizing all aspects of the contract lifecycle, taking contracts out of the realm of paper. There’s probably no other company better prepared to do that than DocuSign, yet William Blair finds that it’s not keeping up with competitors.
“While DocuSign is the only public company that offers a CLM solution (excluding legacy SAP and Oracle products in the space), our conversations with industry participants indicate that it is trailing these vendors from an innovation perspective,” the firm wrote in the report.
Although the company is the leading electronic signature provider, CLM is a crucial piece of this business and DocuSign needs to be in the middle of it to be successful. It’s an area that is ripe for expansion, and it is precisely a lack of expansion that is adversely affecting the company’s growth, something Thygesen acknowledged in his conversation with analysts after earnings.
“I think on the expansion rate, I think it’s a continuing trend that we’ve been talking about over the last few quarters, which is, as the book of business has grown and the macro environment has softened, the rate at which customers are expanding is slowing. So, that growth rate and expansion is slowing. And so, I would say there wasn’t a big change in Q4 relative to a couple of quarters before but it is a continuing trend that’s putting some pressure on the top line,” Thygesen said on the call.
During DocuSign’s earnings call, the company said that in the future it wants to “turn flat agreements into structured data that can be used to make intelligent decisions.” Part of that journey, per its CEO speaking to investors, will include tools like web forms, which it reckons may “help customers deliver a better and simpler experience by moving from legacy contract forms to a modern web and app experience.” The company also discussed the potential for AI to expand its footprint inside of its product mix.
DocuSign hopes that by transforming its products by making them more intelligent, automated and easier to use, it could lead to the business expansion they are craving.
TechCrunch+’s read of the company’s remarks to investors is that it remains very focused on contracts and e-signature more broadly. In one sense, this is a compliment. Many businesses flounder when they expand too far from their core remit. At the same time, enterprise file storage and sync provider Box showed that a company that starts doing one thing well can add a lot of future upsell to its customer base; Box managed to reignite its own growth rate after slowing for a lengthy period, leading to a rebound in its public market value.
DocuSign is in a place where any incremental growth matters, given that it anticipates single-digit top-line expansion in its fiscal 2024. The questions before shareholders are whether its technology roadmap will have an impact on growth, and, if so, when.