Could DocuSign Change Course in Q4?

DocuSign (NASDAQ:DOCU) got a significant boost from the COVID-19 pandemic, which drove customer demand for its products and offerings at an unprecedented pace. However, the economic reopening led to a slowdown in demand, and in turn, weighed on its financials and stock price. 

DocuSign stock has fallen more than 61% in the past six months. Meanwhile, it has lost nearly 25% of its value this year alone.

This drop in DocuSign’s stock price reflects a moderation in growth. DocuSign’s top-line growth slowed from 58% in Q1 to 42% in Q3. Besides revenues, DocuSign’s billings growth has also slowed. It has decelerated from 51% in Q1 to 28% in Q3.

What’s in Store for Q4?

It’s worth noting that the economic reopening and difficult year-over-year comparisons will likely hurt DocuSign’s near-term prospects. Q4 billings and revenue growth rates will likely decelerate further. 

During the Q3 conference call, DocuSign’s management projected Q4 revenues in the range of $557 to $563 million, which translates into a year-over-year growth rate of 29% to 31% and reflects a further slowdown. 

Meanwhile, DocuSign’s billings guidance indicates that growth will moderate to 21% to 23% in Q4. 

DocuSign’s Q4 guidance “failed to meet consensus expectations,” noted Bhavan Suri of William Blair. However, the analyst maintains a Buy rating on DOCU stock. 

While Suri acknowledged that the lack of visibility is a concern, he believes that “DocuSign’s long-term business fundamentals remain intact.” The analyst remains upbeat about DocuSign’s “clear leadership in the esignature and broader agreement cloud markets,” customer wins, and strong retention. 

Besides Suri, hedge funds and investors holding portfolios on TipRanks also have a positive outlook on DOCU stock. Per TipRanks’ Hedge Fund Trading Activity tool, hedge funds added 3.5M DocuSign shares in the last three months. Meanwhile, TipRanks’ Stock Investors tool shows that 6.6% of investors increased their stake in DOCU stock. 

DOCU Stock Forecast

Due to the correction in price, DOCU’s stock price forecast on TipRanks shows significant upside potential. The average DocuSign price target of $200.31 indicates 75.1% upside potential to current levels.

However, analysts are cautiously optimistic about DOCU stock due to the slowdown in growth and uncertainty. It has received 8 Buy, 7 Hold, and 1 Sell recommendations for a Moderate Buy consensus rating. 

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