Shares of DocuSign are down today almost 13% following what has been described by analysts as a "stellar" report on Thursday evening.
Indeed, the quarter seemed to hit all the high points, with revenue and earnings beating expectations, and the outlook for this quarter higher as well. The raging international business, where revenue rose 60%, is set to get some added focus with the appointment of CFO Michael Sheridan moving over to run the overseas operations. And DocuSign added a major new category of product in the quarter, the ability for large institutions to notarize contracts without any in-person visits.
In an interview with ZDNet, CEO Dan Springer said the trends that have boosted business, specifically digital transformation, will last past any eventual denouement of the pandemic.
"A lot of people are asking, what happens if we get to a new normal, and people are able to go back to offices, and work from home is not a requirement," said Springer.
"Our view is that we're not going to see any regression; once you've gone from paper and manual processes to a digital process, which is faster, which is cheaper, which is a much better consumer experience, you're not going back, no one is going to go back to paper."
In the meantime, revenue has been boosted by a sudden urgency to make processes digital. The rise of 61% in billings last quarter is evidence of that. "The path has been accelerated by COVID-19, there's no question," added Springer.
Revenue in the three months ended in July rose 45%, year over year, to $342 million, yielding EPS of 17 cents. Analysts expect DocuSign to end the year with $1.38 billion in revenue and 58 cents EPS. Growth is expected to continue in the double digits next year and the year after.
Among new offerings in the quarter, DocuSign unveiled its plan to make available a collaborative notary function. When a large customer such as Bank of America wants to notarize a customer contract, say, opening up a new account, the customer has to physically show up at a branch.
DocuSign already has a notary capability, but it lacked the collaborative and remote aspects. With the acquisition in July, for $38 million of six-year-old startup Liveoak Technologies of Austin, Tex., DocuSign will introduce a new product, called DocuSign Notary, that enables documents to be notarized while all parties are remote, without any on-site visit. It's expected to be out in beta later this year
"A lot of people have pushed us, saying when is DocuSign going to have that capability," said Springer.
The so-called first-party notary business, with large enterprises performing the notary function, is closing in on a billion dollars in annual business, said Springer. The third-party notary function, where a consumer takes a document to FedEx Kinkos to be notarized, is harder to estimate because it's highly fragmented. DocuSign also expects to serve the third-party market, but for the moment, said Springer, the company will focus on large clients in the first-party market, "to serve our enterprise customers."
Bear in mind, a billion-dollar notary industry is still quite small compared to the $25 billion value of the market for plain-old contract signings that is DocuSign's bread and butter.
Analytics capabilities and even machine learning will increasingly find their way into the product offering, said Springer. "We think this is something really important to the future of our business," said Springer.
Such technologies may enhance the way that contracts can be manipulated, analyzed, and extracted. That can enhance DocuSign's claim to have a "platform" that is broader than just signing, what the company refers to as the "Agreement Cloud" (think of Adobe's Creative Cloud.)
DocuSign spent $188 million in February to buy Seal Software, in the sleepy Northern California enclave of Walnut Creek, which has developed ways to automatically assess contracts based on terms and phrases. Using analytics, DocuSign can improve the management of what's known as a "contract lifecycle management," all the different desks a document has to pass.
"A lot of times people are thinking about patterns" in contract signings, said Springer. "They notice a certain number of contracts are going through a review process, and some have to go to legal, but some just need a sales team if the parameters are tight enough."
"Over time, people want to say which agreements didn't actually need to go to the same people," and the Seal capabilities can reveal those kinds of unnecessary work. There is also a need for reporting and analytics, noted Singer. "People want to understand how their business is doing by looking at their agreement."
"A CFO might say, I can see how many contracts have been signed, but I don't know really how many are how far through the process; we forecast, and it looks like we're going to finish the quarter based on where we are with those in-flight contracts."
Another frontier for DocuSign is greater and greater integration. Today, DocuSign can occasionally feel like a one-off, where an individual only ever encounters the company's software for the occasional contract signing. Over 60% of the company's transactions already happen via the company's API, inside of another piece of software such as Salesforce or SAP. There are 350 such integrations with other programs.
"The future is going to be very much that people aren't going to stop what they're doing, go log into DocuSign," said Springer. "They're going to say, I just want it embedded in those overall business processes, so they don't even have to think about it."
Such continued integration could conceivably open up a realm of micro-transactions, said Springer. "We're going to see that opportunity will continue to grow, we don't even know what that universe could look like, but I think it's substantial."
On Thursday's call, DocuSign announced that its CFO, Michael Sheridan, will move from that role to taking over the running of international operations, with board member Cynthia Gaylor taking over as CFO. Despite great success overseas -- international revenue rose faster than total company revenue last quarter, up 60% -- DocuSign still has much room to expand, said Springer.
"International is behind where I think we should be for a business of our scale," said Springer, making up only 19% of revenue in the quarter. There have been historical reasons for that, such as different country regulations about contracts, said Springer. "But at the end of the day it's about focus, and I wasn't putting enough focus on that international opportunity till now, and that's why I'm thrilled to have Mike take that leadership opportunity."
Asked about the 13% drop in the stock price Friday morning, Springer replied, "If we spent our time here trying to figure out what's going to happen to the stock market, it would be a real mistake."
"We should be focusing on building a really great business, driving a tremendous amount of customer success, and making this a place that is the most attractive workplace in the tech environment so we can win the war for talent."
"If we do that, over time, I think the stock price will take care of itself."
Even with the stock drop today, DocuSign shares are up 360% in the past year, versus a 41% rise in the Nasdaq Composite Index.