By Senad Karaahmetovic
Shares of DocuSign (NASDAQ:DOCU) are down almost 25% in premarket trading Friday after the company reported worse-than-expected Q1 earnings and slashed its full-year guidance.
DOCU reported Q1 adjusted EPS of 38c, compared to 44c in the year-ago period and below the analyst consensus of 46c per share. Revenue came in at $588.7 million, up 25% YoY and above analyst expectations of $581.8 million.
DocuSign generated $569.3 million in subscription revenue, beating the consensus projection of $564.6 million. The e-signature company reported $613.6 million in billings, up 16% YoY and topping the analyst estimates of $578.5 million.
The adjusted gross margin stood at 81%, while analysts were expecting 80.5%.
For the second quarter, DocuSign expects to see revenue in the range of $600 million to $604 million, while analysts were looking for $602.2 million. Subscription revenue is expected to range between $583 million to $587 million in the second quarter, compared to the consensus estimates of $581 million. The company expects Q2 billings to be between $599 million and $609 million, well below the analyst estimates of $659.3 million.
For the full fiscal 2023, DocuSign expects revenue in the range of $2.47 billion to $2.48 billion, with analysts expecting also $2.48 billion. The company expects FY 2023 subscription revenue to range from $2.39 billion to $2.41 billion, compared to the analyst estimates of $2.4 billion. The company estimates FY 2023 to range between $2.52 billion and $2.54 billion, down from $2.71 billion to $2.73 billion, while analysts were estimating $2.72 billion.
Evercore ISI analyst Kirk Materne downgraded DocuSign stock to In Line from Outperform with a price target of $75.00 per share, down from $100.00. The analyst sees “too many moving parts” and better risk/reward elsewhere.
“Not huge fans of the post EPS downgrade and while DOCU shares are probably close to a bottom at current levels if one is taking a longer-term view, we believe the combination of tough compares and continued execution challenges/turnover in the field means any meaningful rebound in billings growth is still further out than we hoped,” Materne said in a client note.
The analyst added that “the upside is very limited.”
“We believe until billings accelerates back above 20%, the margin guide needs to point investors to a 20%+ op. margin outlook for FY24 to offset the revenue deceleration.”
RBC analyst Rishi Jaluria cut the price target on DOCU stock to $80.00 per share from $85.00 but remains Outperform-rated despite “disappointing” results.
“DOCU reported a disappointing F1Q23, with a cut in FY billings guidance being the headline, leading shares down 23% AMC. Our other key takeaways were: 1) management underestimated the impact from higher interest rates as well as pulled-forward demand during COVID; 2) while GTM changes are now complete, execution could take longer than expected; 3) underlying metrics underperformed, except net adds; and 4) FY23 margin guide kept, despite investor concerns of downward revisions,” Jaluria explained in a note.