DocuSign Inc.’s rally in the extended session Thursday cooled after executives warned of smaller deal sizes and expansion rates as the e-signature company’s quarter and outlook surpassed Wall Street expectations.
shares had initially surged as much as 14% after hours right after the company’s report, but the rally cooled after Chief Executive Allan Thygesen told analysts on a conference call that “we are seeing more moderate pipeline and cautious customer behavior coupled with smaller deal sizes and lower volumes.”
Pressure on shares increased as outgoing Chief Financial Officer Cynthia Gaylor expanded on Thygesen’s comment. The company also announced that Blake Grayson, who recently served as CFO at The Trade Desk. would succeed Gaylor as CFO.
“The macro environment continues to create uncertainty for our customers, and we’re seeing the impact of smaller deal sizes and lower expansion rates across the business as customers scrutinize budgets,” Gaylor told analysts.
Gains pared further as executives referred to tough macro conditions, and shares ended the after-hours session up 5%, following a 2.2% gain to close the regular session at $58.48.
The company reported fiscal first-quarter net income of $539,000, or break-even per share, versus a loss of $27.3 million, or 14 cents a share, in the year-ago period. Adjusted earnings, which exclude one-time charges and stock-based compensation charges, nearly doubled to 72 cents a share from 38 cents a share in the year-ago period.
Revenue rose to $661.4 million from $588.7 million in the year-ago period.
Analysts surveyed by FactSet had forecast 56 cents a share on revenue of $641.7 million.
The company forecast revenue of $675 million to $679 million for the July-ending quarter, and $2.71 billion to $2.73 billion for the year.
Analysts had estimated $667.7 million for the fiscal second quarter, and $2.7 billion for the year.
Like most tech company execs this earnings season, Thygesen told analysts how it is using generative AI, like OpenAI’s ChatGPT, for a feature that summarizes key parts of agreements for users. OpenAI is backed by Microsoft Corp.
which has invested billions of dollars in the company.
“This new feature, which is enabled by our integration with Microsoft’s Azure OpenAI service and tuned with our own proprietary agreement model, uses AI to summarize documents critical components, giving signers a clear grasp of the most relevant information within their agreement, while respecting data security and privacy,” Thygesen said, noting that DocuSign has “the world’s largest set of agreement data.”
DocuSign (NASDAQ: DOCU) shares jumped as the stock reacted to the company’s robust financial results for the fourth quarter of fiscal year 2020. The stock opened at a record high of $225.24 on Wednesday morning to quickly pull back in the afternoon as executives discussed the pressure of macroeconomic conditions.
For its fiscal Q4, DocuSign reported revenue of $426.7 million – up 63% year-on-year – and non-GAAP earnings of $0.47 per share. While revenue for the period ease slightly short of analysts’ expectations of $427.1 million, earnings during the quarter beat expectations of $0.30 per share.
Gross margins remained healthy during the quarter, expanding by 6 percentage points from the year-ago period. In terms of customer growth, DocuSign added more than 476,000 subscribers in Q4, bringing its total user base to over 884,000.
For its entire fiscal 2020 year, DocuSign reported total revenue of $1.118 billion, up 44.2% year-on-year, and non-GAAP earnings of $1.50 per share.
During an earnings call after the release of its earnings report, executives acknowledged headwinds associated with macroeconomic issues. Chief Financial Officer Mike Dinsdale remarked, “As we pointed out our guidance … we are expecting a challenging macroeconomic environment during fiscal 2021.” Nevertheless, executives maintained their current outlook for the next fiscal year, expecting total revenue of $1.645-$1.665 billion.
In response to the earnings report and outlook, DocuSign shares briefly surged on Wednesday but quickly faded during the afternoon. By the end of trading, the stock closed at $213.04, up 0.89% for the day.
DocuSign’s mixed results prompted a wave of mixed sentiment from analysts. SunTrust Robinson Humphrey analyst Michael Vinciquerra reminded investors that, “despite execution challenges, DOCU is still one of the best cloud SaaS stories in the sector.” He maintained his “Buy” rating on the stock with a target price of $275.00.
Overall, investors had generally positive reactions to the company’s results, though the rallied cooled off during the day as executives faced the reality of tough macroeconomic conditions.