DocuSign, Inc. (NASDAQ: DOCU) pioneered e-signature technology. The company aims to accelerate business by making it easy for businesses to sign agreements. DocuSign has created a replacement for the lengthy manual signing process. Instead, companies can use a speedy e-signature system that maximizes productivity. Today, their solutions are the preferred method of signing documents online.
DocuSign Stock Performance
At the close of trading on Friday, December 15, 2023, the stock spiked nearly 12% after a new report on the stock. According to the media report, DocuSign is holding talks with outside advisors on a potential sale. It reportedly seeks a buyout from private equity firms or a strategic buyer. Discussions are reportedly still in the preliminary stages.
In 2022, DocuSign (DOCU) stock lost nearly a third of its value. However, the stock has rebounded in 2023, and it is up 8.39% year-to-date. The stock has seen its value rise 18.27% in the past six months. Additionally, it has seen a 40.43% spike over the past month.
Why A buyout Makes Sense
DocuSign has a market cap of $12.87 billion. In its last reported quarterly results for Q324, the company had a revenue of $700.42 million, representing an 8.51% Y/Y increase. Its net profit margin was 5.54%, increasing 219.65% Y/Y. In the outlook section, the company expects $ 696 M to $ 700 M in revenue for Q424. For FY24, the company’s revenue guidance is $2.746 billion-$2.750 billion.
DocuSign stock went public in 2018. The company saw rising product demands during the pandemic, which led to phenomenal growth. However, the growth slowed once lockdown measures were relaxed. Additionally, the company has faced stiff competition from Dropbox and Adobe.
The stock lost 22% of its value in March after the company announced CFO Cynthia Gaylor was leaving. During the same announcement, the company said investors should expect single-digital revenue increases for the coming quarters. That was a massive drop from the over 50% quarterly revenue growth during the pandemic.
When Could a Buyout Happen?
A leveraged buyout would make the deal one of the biggest tech buyouts in recent months, even at a modest premium. It would likely be higher than the $12.5 billion the Canada Pension Investment Board and Silver Lake paid for Qualtrics at the start of 2023. Thus far, the largest tech deal was by Cisco, which is in the process of acquiring Splunk for $28 billion.
If DocuSign sells for a modest premium, the final buyout price would be around $15 billion. It would be nearly five times its projected 2024 revenue of about $2.75 billion and about 34 times its FY24 adjusted profits.
There have been rumors in the past that Microsoft could buy out DocuSign. Those rumors were fuelled by a 2022 strategic partnership that saw the two companies collaborate. However, a private equity buyer would also make sense.
DocuSign Stock Forecast
DocuSign has had a strong performance throughout 2023. However, analysts believe its strong performance has already been priced into its share price. Consequently, analysts give the stock a hold rating. They predict a high of $87 for the stock and a low of $45 for DOCU stock. They give the stock an average target of $62.23, which is a 1.70% based on its last price of $61.12.
Should You Buy DocuSign Stock
FY24, ending in January 2024, will be the first time DocuSign has reported a profit since it went public in 2018. Based on traditional value metrics, DOCU stock is extremely cheap. The company has already integrated AI into its systems, which can help spot potential contract risks and find opportunities. Its integration will help companies save a lot in legal fees while raising demand for its products.
DocuSign has a Price/Sales ratio of 4.82, which is among the cheapest since 2018.it is also on track to deliver an EPS of $2.65 for FY24. Its current valuation makes it hard to go wrong on DOCU stock.
While the slowing down revenue growth is concerning, it reported a free cash flow of $240.3 million in Q324. Additionally, it reported $1.7 billion in cash, cash equivalents, restricted cash, and investments in the same quarter. Consequently, it can invest in growth-oriented aspects of the business, like marketing, once the economy improves.
While DOCU stock might not revisit its pandemic highs soon, there is a good chance of a high upside based on its current performance. Additionally, once the looming buyout is officially confirmed, it could send the stock skyrocketing.
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