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On Friday, Morgan Stanley (NYSE:MS) reaffirmed its Equalweight rating on Docusign Inc. (NASDAQ:DOCU) with a steady price target of $97.00. The company’s fourth-quarter performance surpassed expectations, with billings growing by 11% year-over-year, which was more than double the guided figure of 5% and beyond the high single-digit growth anticipated by the buy-side. According to InvestingPro data, DocuSign maintains impressive gross profit margins of 80.16% and shows strong financial health with an overall score of "GREAT," suggesting solid operational efficiency. The firm also introduced its fiscal year 2026 billing guidance at 7% year-over-year growth, or 8% on a constant currency basis, which is ahead of the consensus estimate of 6%. This outlook aligns with InvestingPro’s analysis, which indicates that net income is expected to grow this year. For investors seeking deeper insights, InvestingPro offers 13 additional key tips about DocuSign’s financial position and market performance.
Docusign’s Q4 results have sparked a debate among investors. While some are skeptical, attributing half of the quarter’s outperformance to early renewals, others are encouraged by signs of improved gross retention and higher-than-expected Identity and Access Management (IAM) billings. Additionally, the FY26 billings guidance that exceeds consensus has led to a belief that achieving double-digit growth is now more plausible.
The company’s IAM segment showed promising progress in the fourth quarter, with a significant portion of direct customer deal volume including IAM services. This contributed to a small but noteworthy percentage of the total subscription recurring revenue. Management anticipates that the IAM business will expand significantly in FY26, comprising a larger share of the subscription revenue, which could mean a roughly fivefold increase in the IAM business to an approximate $320 million annual recurring revenue run rate. This growth is particularly notable given that it is expected to come predominantly from the small and medium-sized business segment, despite IAM typically providing more value to enterprise customers with complex agreement workflows.
For FY26, Docusign has forecasted operating margins below consensus due to gross margin pressures and additional research and development investments aimed at enhancing the IAM platform. Following the after-hours trading session, the company’s free cash flow estimates have been adjusted, and the stock is trading at approximately 17 times the projected CY26 free cash flow. According to Morgan Stanley, with these developments factored into the after-market price, the risk/reward balance for Docusign’s stock remains even, as the positive aspects seem to be already reflected in the current valuation. InvestingPro’s Fair Value analysis suggests DocuSign is currently undervalued, with the stock trading at a P/E ratio of 15.3x and maintaining a healthy free cash flow yield. For comprehensive analysis of DocuSign and 1,400+ other stocks, including detailed valuation metrics and expert insights, investors can access the full Pro Research Report on InvestingPro.
In other recent news, Docusign Inc. reported a strong fourth-quarter performance, surpassing expectations with a 9.0% increase in total revenue and an 8.9% growth in subscription revenue. This growth was driven by early renewals and the strength of the Identity and Access Management (IAM) segment. The company’s operating margin also exceeded forecasts, reaching 28.8%. Jefferies maintained a Buy rating with a price target of $115, highlighting Docusign’s top-line growth and potential for margin expansion.
Meanwhile, BofA Securities adjusted its price target for Docusign to $98 from $112, maintaining a Neutral rating due to concerns over valuation despite the company’s strong execution on growth initiatives. Wolfe Research kept a Peerperform rating, acknowledging the solid quarter but expressing caution about fiscal year 2026 guidance. Needham maintained a Hold rating, noting impressive IAM bookings and potential growth catalysts but seeking more evidence of sustained adoption.
Citi raised its price target to $115 and reiterated a Buy rating, emphasizing Docusign’s billing outperformance and positive trends in subscription revenue. The analyst noted the potential for international expansion and IAM growth, contributing to an optimistic outlook for the company. These recent developments highlight varying perspectives on Docusign’s performance and future prospects from different analyst firms.
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