DocuSign (NASDAQ:DOCU) is one of the latest US tech unicorns, specialising in electronic signature solutions, which allow organisations to manage and sign their contractual agreements in a digital and secure manner on various devices. The company has reached the incredible milestone of 1 million customers and counts clients across multiple industries such as finance, real estate, technology, healthcare, and law.

DocuSign was perfectly positioned with their product and service to make the most of the pandemic fallout and subsequent impact on global business since 2020, becoming the undisputed leader in this budding market segment. JP Morgan believes that the electronic signature market is a $25 billion opportunity and that ‘digital contracting’ could represent even further upside. The bank estimates DocuSign to have already captured 75% of the market share, as the first-mover advantage has created a clear position of dominance, brand recognition, and along with it, monopolistic opportunities.

COVID was the catalyst to their growth, as it highlighted the inefficient nature of contracting and signatures, an often inconvenient process faced by all players. Large institutions, small and medium sized businesses, and even individuals have benefited during this recent period from increased efficiency and cost savings in moving to these digital solutions. As global economies and firms emerge from the pandemic restrictions but will likely continue with hybrid working environments for the foreseeable future, e-signatures and digital contracting remains in its early stages. We believe untapped potential for further geographic expansion, as well as expanding across newer customer types (in particular, SMEs and individuals) will continue to be extremely bullish on the stock price.

Stock outperformance and financial strength  

The Docusign stock price saw explosive growth, trading at ~$75 at the start of 2020, and reaching ~$300 in July of this year. This has tracked the strong revenue growth experienced by DocuSign. The company recently provided a stronger than expected outlook for rest of the year, even after posting five consecutive quarters of accelerating revenue growth. Whilst the brand image and performance is strongest in the US, international revenue grew 84% in the latest quarter, as expansionary investments are quickly paying dividends to the firm’s growth trajectory.

Strong institutional support

The stock benefits from a high level of interest and support from some of the world’s largest and savviest investors. Key shareholders in the company with the largest stakes include institutional asset managers such as Blackrock, Vanguard, as well hedge funds such as Tiger Global Management, and Cathie Wood’s ARK Investment Management.  

It’s not only the buyside community that is rallying around DocuSign, there is also further belief from the sell-side. From the group of Wall Street research analysts at the largest investment banks, 95% of them have rated the stock either a Buy or a Hold, assuming practically no downside scenarios for this growth stock.    

We believe DocuSign represents a rare opportunity – an innovative company, a strong product, and an industry sector in transformation. DocuSign stock should continue to be a big buy opportunity in the long-term.

Leave a Reply