Morgan Stanley downgraded DocuSign stock on Thursday.
Tiffany Hagler-Geard/Bloomberg
DocuSign stock slipped Thursday after a downgrade from Morgan Stanley analysts, who cited concerns over the electronic signature company’s postpandemic sustainability.
Analyst Stan Zlotsky downgraded the stock to Equal-weight from Overweight and slashed his price target by nearly half to $165, down from $350 previously.
DocuSign capitalized on the overall growth of stay-at-home stocks during the pandemic, benefiting from what Zlotsky called an “easy selling environment.” Now that the economy is reopening, the analyst is concerned salespeople became accustomed to “picking up the low-hanging fruit” of large renewals among existing customers.
“Although management is making the right moves to refocus on the prepandemic basics of selling, it likely takes time to build that pipeline and convert into growth,” he wrote in a Thursday research note.
There are three main reasons it could take time for DocuSign to rebound, Zlotsky said. The first is that it takes up to nine months to hire and train additional sales representatives. Second, renewals completed in the third and fourth quarters appear to be challenged, meaning another year will pass before those contracts can lead to upsized renewals. Lastly, Zlotsky believes management will remain conservative with their guidance.
The analyst revised his billings estimates for the 2022 fiscal year to $2.3 billion down from $2.4 billion. He also lowered his total revenue estimates for the 2023 fiscal year to $2.55 billion, down from $2.61 billion.
DocuSign stock was down 3.7% to $145.46 Thursday.
Earlier this month, DocuSign reported third-quarter earnings that showed signs of weakening demand. CEO Dan Springer said the company “after six quarters of accelerated growth” was seeing “customers return to more normalized buying patterns.”
At the time, Citigroup analysts called the report “one of the biggest [software-as-a-service] whiffs in recent memory.” Investors felt similarly, with the stock plunging 42% on Dec. 3 in response to earnings.
“The magnitude of the selloff is not surprising considering the thesis change underpinning the story,” Zlotsky wrote.
The stock has slowly started to rebound, drawing bargain hunters like Cathie Wood’s ARK Innovation ETF.
For the fiscal fourth quarter ending Jan. 31, the company said it expects revenue of $557 million to $563 million, below analysts’ expectations of $573.8 million. DocuSign expects fourth-quarter billings of $647 million to $659 million. Analysts were forecasting fourth-quarter billings of $705.4 million, according to FactSet.
Write to Sabrina Escobar at [email protected]
