The DocuSign Disaster | Sell or Buy the Stock.

hey everyone me kevin here what the heck

happened to docusign today is this

overblown is this oversold and is this

potentially just the symptom of

nervousness in this market leading

docusign to sell off like crazy take a

look at this indice futures currently

down about one-third to one-half of a

percent uh in the after-hours here on

the december second volatility index up

about three percent if we jump on over

though to docusign you can see the spy

there starting to drop drop on over to

docusign down 29

of the after hours docusign is a company

that i've had a price ideally a purchase

price target of under 200 on so i

haven't really been buying docusign

actually sold a little bit of docusend

and now we've got a 29 drop much well

below under 200 uh so well within where

i originally thought that's kind of

where i want to be buying it it's at a

hundred and sixty-five dollars right now

if you zoom out for a moment you'll see

that 165 takes you about here to where

this line is we run on over that brings

us over to

q2 of 2020 pricing that is absolutely

insane so how bad were the earnings how

bad were they to justify and nearly 30

percent sell off well folks here's your

answer

docusigns total revenue actually beat it

came in with a beat 545 million this was

a beat i'll tell you exactly what the

beat was let me see here earnings

estimates and uh then we'll look at the

guidance so the estimate was

531 million so we actually had a beat on

revenue for this quarter 531 was the

expectation so we beat by about 2.6 on

revenue

we had a miss

on

billings so net billings came in at 565

that is a miss of 3.7 so you had revenue

coming in at 2.7 you had billings coming

in at a minus

3.7 and then you had guidance coming in

about two and a half percent short uh on

the downside here comparing to the

midpoint we were expecting uh guidance

to come in with revenue of about 574.2

we ended up coming in with a range of

557 to 563 so from the midpoint that's

about a negative two point two and a

half percent so in other words we beat

on revenue by two point seven percent

missed on billings by three point seven

percent missed on guidance by two point

five percent and the stock is selling

off about 10x that or 30 freaking

percent it's pretty wild let's take a

look at some of the fundamentals here to

see if this is something we should be

long-term concerned about so first thing

that i noticed is that this particular

quarter the three months ending october

i did comparisons i always like to

compare to the last quarter now in order

to do that i usually because they like

to give you a year-over-year comparison

which i don't like doing as much so i

had to pull up the other earnings for q2

of 2021 which is not a big deal i did so

i pulled those up and i was able to see

that subscription revenue actually

increased by 7.2 percent their upsells

weren't as strong so their professional

services were actually down 11 but this

is a nominal number here they could

literally have zero here and they'd

still be growing their subscription

revenue this is a company that makes

money from subscription revenues so 7.2

increase month i'm sorry quarter over

quarter not bad that's actually i mean

if a company is growing 7.2 percent per

year that'd still be pretty decent but

this is a 7.2

quarterly uh

subscription

increase that works out to about a

28.8 percent annual

growth rate in subscriptions which is

very good for the company slightly

slower though than that 30 plus percent

and even 40 that we've kind of been

seeing in in prior quarters thanks to

how much has been pulled forward to

electronic signatures for covin which

we'll talk more about that in a moment

worth noting that international revenue

came in at a 68 growth and now

represents 23 percent of total revenue i

thought that was pretty interesting

because personally i don't love

investing in international stocks

because i have a really hard time

understanding uh circumstances and in

different countries like i love embraer

i think it's a value play i think it is

a much better deal than boeing but

it's in brazil where inflation's 10 and

i can't tell you when inflation's going

to u-turn in well really anywhere but

but certainly not in brazil anyway

so taking a look a little bit more down

here subscription cost this was

interesting in my opinion this is

actually a reason to be bullish here

because the miss was nominal but look at

this potential reason to be bullish

revenue in subscriptions was up 7.2

percent but costs for servicing those

subscriptions were actually flat

compared to the last quarter so you

didn't see a seven percent increase in

revenue cost there which in my opinion

is very very good all of this by the way

is helping contribute to the fact that

they're taking 81.2

dollars of gross profit for every 100

they make so they make a hundred dollars

they're taking 81.2 dollars

to their opex which it used to be closer

to 79 so we're actually seeing marginal

improvement here because it's costing

them less to service their subscriptions

and they're getting more subscriptions

which is a really good sign this helps

increase margin now the company does

still spend an insane amount of money on

sales and there was even a reference in

the earnings call to potentially the

company pressuring their employees a

little bit more leading to some not so

great glass door reviews

for the last quarter though they still

find that their reviews online are very

very uh very good but take a look at

this i'm just reading some of your glass

door reviews here which i know you take

really seriously and so it seems like q3

was tough on your sales force

and docusign executives responded here

and said hey look we have an incredibly

high glass door rating you don't need to

worry about that but uh

they did seem to lament the fact a

little bit that they weren't able to

cross sell as well so it's possible

that's maybe where some executive

frustration did end up coming through no

excuse obviously you want to take care

of your employees the company is

expected to be profitable next quarter

which is really really exciting because

it's a big u-turn for docusign you can

see here it's just been losing

a little less than uh a dollar per share

regularly here

right now we're only at three cents of a

loss so if we can turn this to a profit

next quarter and get back on track maybe

beat these lower estimates i think this

uh this particular company has a really

good u-turn potential especially since

we're selling at a relatively lower

substantially lower valuation than where

we were before i agree that when

docusign crossed 300 the valuation was

ridiculous but if we go ahead and jump

out to 2025 which is typically what

we're going to do for these growth

companies you're you're probably going

to end up looking at revenue of

somewhere around 4.3 billion and we're

probably going to be looking at an eps

of somewhere around 3.55

and so if you take 3.55

or actually take the current share price

which is now on sale at 165 divided by

3.55

you're going to be sitting at a forward

pe of about 46.4

which is substantially better than what

this used to sit at i mean this was this

used to look very very very ugly we're

even expecting in 2022 which is next

year to be at almost half of that

1.75 so even if we only go out to one

for 2022 we're sitting at about a 94 pe

and for a company with the growth that

we're seeing now 2022 expecting

somewhere around 43 percent so hoping we

can get back on that growth trajectory

which remember if for 2022 we're

expecting 43 percent growth we're going

to have to be growing a whole lot more

than 7 percent right we're going to have

to be growing like 10 percent a quarter

10 to 10.1 percent a quarter so we're

going to have to bump that up a little

bit that's why i think there's some

nervousness here in q3 hey how are we

possibly going to meet those 2022 and

beyond estimates but we do forecast at

least wall street

analysts forecast that we'll have growth

that'll settle closer to the mid 20s

by 2025 and so this in my opinion puts

this at a normal sort of profitable

growth play or soon to be profitable

growth play and the valuation for the

kind of growth we're expecting it's high

but it's not ridiculous relative to some

other companies

so let's just go ahead and compare a

little bit let's look at snowflake for

example let's go with the 2022 and 2025.

let's write this down so here we'll add

a little page here and we'll write this

down so that way we can do a little bit

of relative comparison because i think

that's always the thing that people go

to is when a stock follows you like the

valuation is so high meanwhile they've

probably never done the math on the p e

ratios or anything and probably don't

even understand what the p e ratio

actually means so we're going to write

this down at 20 22

we'll do 96 here and 2025 will be 46.

let's do a snowflake and just using wall

street's estimates here for snowflake

we are expecting

let's see they're at about 360 bucks

divided by only about 45 cents with

snowflake you want to talk valuation

folks look at snowflake

2025 you're expecting an 800

pe okay let's do another one here let's

do one that's maybe a little closer like

upstart upstart's profitable so i like

upstar

there are certainly a different style of

service but let's jump into

upstart so upstart you're looking at a

projected i only have 2022 here

unfortunately i don't have a 2025 so and

snowflake's going to be negative so

infinite in 2022

so 2022 is going to be negative we do

not have a 20 25 so i'll just put null

for this we don't have estimates 2022

for upstart we're going to be looking at

probably two dollars and 45 cents closed

at 177 so 245

divided by there we go it puts us about

72 so it shows you upstart with its

recent larger sell-off

kind of more pay potentially in the

direction of maybe where docusign might

end up going

uh which that'd be another little bit of

compression here in the stock price

right so there's definitely still the

potential for software evaluation

compression and this is what we've

talked about on the channel as of about

three weeks ago that we're probably

going to see software valuations

compress going forward

that's up start although i do think

upstarts potentially a little bit on the

oversold side

trying to think of a company that's

maybe

not as uh as mature as let's say a

company like adobe but it might be worth

comparing to adobe just because they

also do e-signing products for what it's

worth they're

expecting uh 24 of eps in 2025

so we divide that you're gonna be see

you're only at about 11.

right so this is a mature company like

uh adobe

2025 valuation or pe of about 11 but

their growth is would be expected to be

a lot lower growth of around 11 to 13

percent that's why i think really

looking for a software company that

might be a little closer here i don't

think roblox is on a path to possible

profitability just yet

so we might go with a palantir where

we've also seen of substantia yeah no

real path to profitability for roblox

yet ah 2025 okay actually 2025 a buck 85

divide that by about 1

16 buck 85. roblox would be about 62.

so we'll throw down roblox here

62 for about 2025 that's probably a good

comparison and let's maybe do one more

here let's go with pallent here let's

see what we got for pallet here just so

you can kind of see where docusign sits

valuation wise

pound tier 20 20 uh we only go out to

2022 sadly and so we'll be at about 20

cents there so 20 divided by well 20 is

about a hundred so you're sitting at

about you're sitting at a similar

valuation as pound here right now so if

you think docusign is overvalued you

probably think that palantir is

overvalued as well given that you've got

roughly the same valuation for palantir

as you do docusign and both of them are

expected to have about that 30 percent

growth for the next three years going

forward so this gives you a little bit

of an idea that obviously compared to a

much more mature company like adobe

where you're going to have softer growth

in the future it feels overvalued

for

for a company that's a little newer

growing more potentially growing more

substantially palantiy or docusign

seemed like a good comparison unless of

course you really wanted to

compare to something like

let's try paypal just for giggles we're

moving into a different kind of industry

here but yeah if you think donkey signs

overvalued then stay far away from

snowflake and then you probably also

think that palantir is overvalued but

anyway just do a quick comparison here

because i actually like paypal i think

paypal is definitely on the oversold

side and you've got some more value over

here paypal's growth will probably be a

little less closer to like 19 percent

2025 but uh you're only paying about uh

what is a 187 divided by 10 you're only

paying about 18.7 times for 2025 here so

it gives you an idea i personally like

having a balance when i invest in

companies

so that way i have a little bit

of exposure to companies that maybe have

a little bit of a higher valuation which

docusign does it's not ridiculous like

what you see at snowflake and it has

much more growth than something like

adobe but i also like companies like

paypal where i do have growth but i've

got that lower

forward

pe that we're looking at so it gives you

a little bit of an idea here

let's also now just look at a few more

things that came up in the earnings call

just to make sure i'm covering

everything here

so

this was probably the most key phrase

right here and that was in q3 we saw

demand slow and the urgency of customer

buying patterns temper and this happened

more quickly than we expected so

unfortunately that throws a little bit

of doubt onto their potential forecast

into the future

it is a company that i bought the dip in

a little bit which remember you always

get my buy sell alerts link down below

in the programs that's cyber monday

coupon code ending this friday but

this is a company that i probably won't

have as a massive portion of my

portfolio it's a company i like in my

portfolio but it probably ended up being

something more like a

one to two percenter in the portfolio

maybe i'd get this up to about three

percent if we see a bit more of a dip

tomorrow probably if we saw positive

news on jobs positive news on some of

the catalysts coming out over the next

24 hours to two weeks i'd probably

purchase pick up a little bit more

docusign but i would offset that by

making sure i invested in other

companies that had those lower

valuations going forward specifically my

favorites really being more hardware

plays

whether that's or fintech plays so

paypal square

sofi companies like this sofa could

actually be a decent comparison

because there are a lot of sofi bulls

that and i think in fairness you may as

well just do a quick sofi comparison so

sofi uh right now

barely has a path to profitability

expecting about 64 cents of rev in 2025

profitable 2023 divided by 0.64

puts them at about 25.6 times uh for

2025. so it shows you so far sold off

nicely to where you're getting that

lower 4p about 25.6 again over here

you're still paying about 46 for it so

you're still on a little bit over the

upper side

okay good uh the global sales aspect i

really like really appreciate being able

to have some growth in global markets i

think that's phenomenal one of the

things that i really love is that

they're really working on their sms and

really identification processes so that

way you could do virtual signings for

more documents specifically this is

something i'm most excited about because

i'm so tired of getting these people

coming to my house in person having to

pay for them doc you say notary that's a

game changer for a notaries potentially

for their business in the future but

also

just the amount of ease and the

willingness that you'd want to pay for a

service with docusign i mean i'd rather

pay docusign 20 bucks and they could

split it with a notary that have to go

meet a notary and pay 200 bucks for

mobile notary or something like that but

anyway uh you've got google microsoft

partnering with them more

partnerships with salesforce

they're convinced the growth opportunity

for docusign remains largely untapped

obviously this is what they're saying

uh margin increases

you move removing the covet tailwind a

little bit they talked about talked

about a lot of verticals that they get

still go through

to make sure that they expand their

sales a lot of opportunities to go and

63 billing growth from q3 of last year

it's very very incredible it's still

very good growth but again we want to

make sure that growth come back comes

back so you're making a bet with

docusign that growth is going to come

back

here in this this winter time frame for

next quarter hopefully people spend a

lot of money on

their uh you know there's their sign ups

towards the end of the year

so that way you get more docusign

customers and they get their tax write

off right net retention actually doing

very well still 121 percent they don't

publish churn but this is higher than

the historical range of 114 to 119 this

just means they're able to upsell their

customers a little bit more

and then we talked a little bit about

the glass store commentary and that's it

so this gives you a little bit of an

idea into what the heck is happening

happening at docusign also gives you a

bit of a relative valuation so you have

kind of an understanding of where they

compare to valuation-wise docusign very

much like a palantir

much lower valuation than a snowflake

but not as good as something like a

paypal a sofi or an adobe

valuation-wise so anyway it could be

because you still have a lot of covert

traders in it who as covid goes away

will end up trading out of docusign

that's a very real risk and it is a

potential cause for shorter term concern

so anyway thank you so much for watching

this video hopefully this was very

helpful and insightful for you if it was

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thanks again goodbye