Shares of DocuSign (NASDAQ: DOCU) slumped by 20% on Friday after the company announced its fiscal Q4 of 2022 results that ended in January. DocuSign reported revenue of $580.8 million in Q4 which was higher than consensus estimates of $561.47 million. Its adjusted earnings per share stood at $0.48 which was higher than estimates of $0.47 in Q4.
However, the stock fell off a cliff on Friday as its guidance for Q1 and fiscal 2023 left investors unimpressed. In Q1, DocuSign forecast sales between $579 million and $583 million, lower than analyst estimates of $594.42 million. Further, it expects sales in fiscal 2023 to range between $2.47 billion and $2.48 billion, compared to consensus estimates of $2.61 billion.
How did DocuSign perform in Q4 of fiscal 2022?
DocuSign increased sales by 45% while billings were up 37% year over year in fiscal 2022. This allowed the company to generate record operating and cash flow margins in the last 12 months.
Similar to other tech stocks that gained momentum during the onset of COVID-19, DocuSign saw a deceleration in top-line growth in fiscal 2022. As economic restrictions were relaxed, the demand for products and services provided by DocuSign was slower than expected.
For example, the company saw its revenue rise by almost 50% year over year in fiscal 2021. While sales grew by 44% in fiscal 2022, it was up by “just” 34.9% in Q4 of fiscal 2022. DocuSign CEO, Dan Springer stated, “While the year unfolded differently than expected, we are proud of the ongoing performance and resilience of our team as we scaled to become a multi-billion dollar company.”
DocuSign added 180,000 customers in fiscal 2022 and ended the year with a customer base of 1.17 million. International sales were up 55% year over year in Q4 as the company added 60,000 new customers, which was an increase of 31% year over year. DocuSign’s net dollar retention rate stood at 119% which suggests existing customers increased spending by 19% in the last 12-months.
DocuSign reported a subscription gross margin of 85% while operating profit in the quarter stood at $104 million. Its adjusted operating profit more than doubled to $419 million in fiscal 2022, as operating margin improved to 20%, compared to 12% in the year-ago period.
Comparatively, net income was up 125% at $411 million allowing DocuSign to end fiscal 2022 with almost $900 million in cash. Further, its operating cash flow rose by 41% to $88 million while free cash flow stood at $70 million, compared to $44 million in the year-ago quarter. In fiscal 2022, its operating cash flow rose by 71% to $506 million while free cash flow grew by 107% to $445 million.
What next for DOCU stock investors?
DocuSign remains optimistic about the demand for eSignature and broader Agreement Cloud contracts to gain prominence as the shift towards remote work is inevitable. At $2 billion in annual revenue, DocuSign is well poised to benefit from a first-mover advantage. Its revenue should expand at a healthy pace given the total addressable market stands at $50 billion as enterprises will continue to increase spending on digital transformation processes.
Its strong brand and leading market share in addition to product differentiation suggest the company is uniquely positioned to lead and capture the market opportunity in the eSignature space.
DOCU stock is currently trading 76% below its record highs, valuing the company at a market cap of $14.8 billion. Analysts expect DocuSign sales to rise by 19.5% to $2.52 billion in fiscal 2023 and by 14.7% to $2.9 billion in fiscal 2024. Comparatively, its adjusted earnings per share are forecast to rise at an annual rate of 45% in the next five years.
DOCU stock is valued at a forward price to 2023 sales multiple of 5.9x and a price to earnings ratio of 36.4x which is quite reasonable given its growth estimates. Analysts tracking DOCU stock expect shares to gain by 50% in the next 12-months.