Digital document workflow pioneer DocuSign saw its stock sell off by 42% Friday, following a quarterly revenue forecast Thursday evening that was below what Wall Street analysts had expected, the first time almost four years as a public company that DocuSign had ever missed with its forecast for revenue.
More important to Wall Street, the company missed with its outlook for billings, a figure that combines likely revenue in the current quarter with the potential value of new business added to the company’s balance sheet but not yet recorded as revenue.
The shock to Wall Street was amplified by a previous Q2 report that the company said at the time showed sales growth continued to hold up.
The company mis-judged how fast the business would cool as some of the buying propelled by the COVID-19 pandemic abated, CEO Dan Springer told ZDNet in an interview via Zoom on Friday afternoon.
“We understand that the way we described coming out of the COVID stimulus we’ve had to our business — we hoped it would be a lot smoother,” said Springer.
The company had been expecting the first half of 2021 “was going to be a lot less strong, and in fact it stayed at those very high growth rates,” he observed. “And the then second half, we thought was more of a slowly-land, it was much more dramatic,” meaning, the drop-off in sales growth, “to the point that we missed our guidance for billings, which is what’s been very concerning, seeing that second-half deceleration.”
“We absolutely mis-read, and executed, on this coming off of COVID,” said Springer. “We have to own that, but now we have to be focused on getting back to execution.”
Springer pushed back on the sharpest criticism from Wall Street. Daniel Ives, who follows the stock for Wedbush Securities, Friday cut his rating on the shares from Outperform to Neutral, and cut his price target to $200 from $340. “It appears management was caught blindsided by the quickly changing sales environment which is a worrying trend for the Street,” wrote Ives.
In response, Springer told ZDNet, “We do provide guidance of what we think is going to happen; for the first time in our almost four years as a public company, we were incorrect.”
“So, I’m not sure I would use the term exactly blindsided,” he said.
Springer explained, again, that the overall phenomenon of a slowing was something his company had signaled:
Clearly if we had seen something coming, this sort of magnitude, we would have guided differently, we would have guided to that outcome. But I think we have been pretty clear for over a year that we expect this heightened demand to start to recede, it’s just the way it came; We thought a lot more would come in the first half, but didn’t, and of course people were pleased to see that high-growth success, and so were we, what we didn’t figure out in that guide is that it would all come in the second-half [of the year], which is what has occurred.
Springer also pushed back on the notion that the market for its products has entered a new, more difficult selling environment.
Wedbush’s Ives wrote in his note Friday, “We believe the company is seeing a much more difficult selling environment as the company expands into broader CLM [contract lifecycle management] deals with e-signature going through a major growth transition in the field,” adding “it appears this transition will be rocky.”
“I don’t see it as a major transition,” said Springer. “In terms of the way people are buying, or what they’re trying to achieve, we don’t see that as looking different.”
Rather, DocuSign has to get back to actively nurturing customer take-up of additional functionality and products, a practice it had let slip during the past two years, he said.
DocuSign has what’s known in software sales as a “land and expand” approach, where it first gets customers to try a product and then proceeds to find ways the company can expand its relationship with additional functions and follow-on, or, cross-selling, offers.
The company added 59,000 customers last quarter, a very good result, said Springer, so the “land” part of the business is intact.
“How we expand, what we used to do, was a great field that went out and made sure we were successful, with very high ROI for using DocuSign,” he said, “and then we would say, What about the other parts of the business, the other use cases?”
“In the COVID period, we stopped doing that because customers were coming to us, telling us what they needed.”
“The piece that we missed, where that gap was, was with the existing customers — we stopped that behavior of generating additional demand,” he said. “We lost some of that discipline during COVID.”
Now, said Springer, the company has to bring its workforce back to those first principles of expanding demand.
“We have a go-to-market challenge, that’s what we’re focused on.”
Amplifying the challenge, DocuSign’s workforce has doubled during the past two years. Those new workers have to be brought up to speed on that cross-selling activity that had been a focus prior to their joining the company.
Asked how hard it will be to train the new recruits, Springer replied, “It’s a massive task, because we’re big, and we’ve got a little bit of turning the ship, but I think it’s a straightforward what we need to do.”
“I’ve been involved in enabling sales forces at DocuSign and at other companies for years,” said Springer. “I don’t want to understate things, and we must work hard, but we’re not re-inventing the wheel here.”
The other aspects of DocuSign’s business, such as product innovation, “are operating fine,” he added.
DocuSign may pay special attention to ensuring usability, he said.
“There may be some phenomenon where the feedback loop, we’ll say, Hey, have we made this product as simple as we can make it, to make sure it’s easy as possible to bring to market.”
“But I don’t think we’re trying to re-tool the rest of the business.”
Summing up the outlook, Springer said, “We feel very excited about the long-term growth prospects, nothing has changed in the underlying opportunity.”
“We have a very substantial TAM [total addressable market], strong market leadership position, and we feel that’s unchanged.”
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