DocuSign (NASDAQ:DOCU) is a firm that was born for the current climate, where a growing portion of workflows are sure to become digital. The e-signature business has been growing rapidly, and the company is exploring adjacent opportunities (e.g., contract analytics and agreement cloud) in order to become a one-stop solution for agreement management. This article reviews the business, the market opportunity, COVID-19 tailwinds, competition, valuation and risks. We conclude with our opinion on why DocuSign is a fortune maker stock with shares that can reasonably increase 10x over the next 10 years.
Overview
Incorporated in 2003, DocuSign was first listed on the Nasdaq in 2018. It started its journey as an e-signature solution provider and became the largest player in the business. Last year, the company announced the launch of DocuSign Agreement Cloud platform, an umbrella of service offerings, that helps customers manage the entire agreement workflow (i.e., preparing, signing, acting-on as well as agreement life cycle management). More recently, in order to further bolster its suite of products, DocuSign acquired Seal Software, an agreement analytics and AI technology service provider.
The company follows a subscription-based business model and essentially has 2 sources of revenue:
Subscription Revenue - This segment is driven by fees charged by DocuSign for use of its software platforms, as well as access for customer support. The company receives customer payments in advance for the entire subscription period and then amortizes the revenue over the term of contract. This is the primary source of revenue generation for the DocuSign. Subscriptions accounts for 94% of revenue, and the segment has a gross profit margin of 84%.
Professional Services - This segment includes deployment and integration fees charged by DocuSign for onboarding of new customers as well as revenue from the sale of on-premise solutions. Professional services account for only
