Docusign (NASDAQ:DOCU) is a Software As A Service "SaaS" company that is seeing explosive growth. It provides a way to electronically sign documents that is secure, compliant, and convenient. There are multiple companies in the space but Docusign is so dominant that its name is used a verb "Can you Docusign that for me?" DOCU is the market share leader and has about five times the market share of the next largest competitor (ADBE). Despite being in a rapid growth phase, the company is already cash flow positive and will likely turn its first GAAP profit this year.
Software As A Service
Marc Benioff is an innovator. He was a child prodigy that moved quickly up the management ranks at Oracle. In 1999, Benioff left Oracle to start Salesforce (CRM). He pioneered the SaaS model there which has revolutionized software delivery. Instead of an expensive investment in hardware and a large upfront license cost, software is delivered over the internet on a leasing basis. This provides convenience and upfront savings for customers and a recurring revenue stream for suppliers. The model has consistently been one of the best performing sectors in the market since CRM's founding. Docusign uses this model effectively and has built a scalable company with great capital efficiency.
The market loves SaaS. By my back of the napkin calculation the legacy "perpetual license" software companies trade at about a 5x multiple of Enterprise Value to Revenue. The leading SaaS companies fetch a 13x multiple. DOCU is perhaps a little richly valued at a little over 19 times EV to Revenue. This speaks to the market's love of the company.
Technology
DOCU has a huge technology advantage that starts with 48 patents. But it also has first mover advantage. The company has gotten out of the gate and built customization
