Investment Analysis — $DOCU

Michael Chow

(At the time of writing, $DOCU is at $44.64)

After suffering a recent technology sector beatdown and a (very) slight Q2 revenue growth disappointment, $DOCU now sits at a ridiculously attractive valuation. Below, I summarize why $DOCU has earned a buy rating from yours truly.

Growth

DocuSign realized a 33% YoY revenue growth rate and $18.4MM FCF this past quarter, meaning that DocuSign is incredibly self-financing its enormous yearly growth, while only priced at a revenue multiple of 9.12x. SaaS companies with such a high growth rate are generally not self-sustained. Of the handful of high growth tech companies that are, each has a significantly higher valuation —HubSpot (10.37x), Twilio (12.95x), Atlassian (21.94x).

TAM

DocuSign has a customer count of over 400,000 and growing. These customers range from various sectors including cloud storage, real estate, banking, chemicals, recruiting, bookings, and more. After all, contractual agreements persist among companies of all sizes in every industry, and DocuSign possesses the ability to penetrate them all. With such a wide addressable market, DocuSign sees no shortage of forward growth.

Cash and Cash Equivalents/ Acquisitions

DocuSign announced the acquisition of SpringCM, a contract and document management company in early September 2018, for $220MM in cash. Despite this, DocuSign still reported cash and cash equivalents of $819MM last quarter, positioning themselves to further pursue acquisitions, growing the diversity of their revenue pipeline, securing top talent, and eliminating competition.

Conclusion

Considering their self-sustained growth rate, massive cash moat, and ridiculously wide TAM, I believe a revenue multiple of 12x represents fair value, a short term upside of 27.4%. Despite the slight drop in Q2 revenue growth, I believe the $DOCU sell-off has been overdone, and I am delighted to buy up shares at such a steep discount.

Disclaimer: I am long $DOCU. The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.


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Michael Chow

Written by

Product Management Intern @ Rally Health | Writer @ Product Coalition | Formerly Fellow @ Impact VC

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