DocuSign Puts Its Signature on the New Workplace
COVID-19 has accelerated many businesses trends. The most important might be moving employees out of central offices.
A poll from Gallup finds three in five, or nearly 60% of white-collar workers want to continue to work from home, even after the global pandemic subsides. Clearly, something important is happening.
It’s an opportunity for facilitators like DocuSign (Nasdaq: DOCU, Rated “D”).
Let’s be clear: the process of moving employees out of the office would not be possible without digital transformation. Cloud computing, made popular in the early 2000s, allowed enterprises to run key processing operations off premise. That modularity meant employees could be located anywhere, creating the opportunity to save enormous amounts on office space.
Large enterprises are expected to invest $249 billion ramping up digital infrastructure through 2020, according to report from Gartner. For comparison, the global IT research firm notes that firms spent only $182 billion in 2018.
Most of that spend, $110 billion, will be devoted to cloud application services, or software-as-a-service (SaaS). These applications run natively in the cloud and let users access key programs with a simple internet connection.
Prior to COVID-19, SaaS was mostly about far-flung IT workers moving around data to build workflow efficiencies. The pandemic showed firms the model could be scaled up exponentially. When lockdowns forced all but essential workers to stay at home, SaaS meant white collar workers could continue to make sales calls, attend meetings and conduct business.
DocuSign’s claim to fame in this larger trend is by making software to bring contractual agreements into the digital era.
Founded by Tom Gosner in 2003, the big idea was to disrupt ink and paper contracts, a process that had not changed in centuries. Electronic signatures, Gosner believed, would make processing faster, cheaper and ultimately more accurate. And it has.
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Today, the San Francisco company claims in excess of 500,000 paying customers across 180 countries. Its Agreement Cloud platform has been used hundreds of millions of times to help users sign legally binding documents. AC code is embedded into workflows at 70% of the top global technology companies, 90% of the world’s leading pharmaceutical firms, and 66% of global financial services businesses.
In addition, 800 federal, state and local government agencies in the United States use DocuSign. Contractors, employees and taxpayers can digitally sign documents from almost any electronic device, at any time, from anywhere in the world.
For most forward-thinking businesses, DocuSign is a verb, synonymous with this versatility.
The public life of the company is relatively recent. DocuSign first issued public shares April 2018, raising $629 million. Six months later, the company offered a $500 million convertible bond that managers used to immediately begin building out the platform: They hired more professional sales staff and invested in new technology to expand the reach of AC into productivity, customer relationship management and supply chain software suites.
Company managers said in in January that 350 companies have all integrated Agreement Cloud, including Microsoft (Nasdaq: MSFT, Rated “A-”), Google (Alphabet (Nasdaq: GOOGL, Rated “B-”)), Salesforce (NYSE: CRM, Rated “C-”), Oracle (NYSE: ORCL, Rated “C+”), SAP (NYSE: SAP, Rated “C+”), Workday (Nasdaq: WDAY “D”) and Apple (Nasdaq: AAPL, Rated “C+”).
As more employees work from home in the post COVID-19 world, these cloud-based software suites will become more popular than ever. DocuSign is now the e-signature partner of choice to the biggest and most important brands. It’s a big competitive advantage in a sector that is growing fast.
The Gallup polling news is a piece of this story. Employees now perceive working from home as a benefit. Employers are listening.
Google, Amazon.com (Nasdaq: AMZN, Rated “C+”) and Facebook (Nasdaq: FB, Rated “C+”) have extended working from home into late fall. Others, like Twitter (NYSE: TWTR, Rated “C+”) and Shopify (NYSE: SHOP, Rated “D+”), a Canadian ecommerce software provider, are offering permanent home-based employment.
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In addition to making workers happier, it makes a lot of economic sense, too. Home based workers are more productive and they offer a way out of potentially expensive legal liabilities arising out of workplace infections.
It’s a set of trends highlighted in DocuSign’s financial performance. The company reported $297 million in first quarter sales, up 39%, year-over-year. This follows similar growth in fiscal 2019, when sales exploded to $974 million.
Shares trade at 180 times forward earnings, and 25.2 times sales. While this is very expensive, the high valuation shows investors’ confidence in more growth ahead.
With the future of the workplace looking more and more like our living rooms and home offices, DocuSign is in a tremendous position. Growth investors should consider buying shares into weakness.
Jon D. Markman