by Ian Harvey
June 11, 2020
DocuSign has surged due to the pandemic as clients are discovering more than ever that online signatures are faster, more convenient and cost less than in-person alternatives, and also poses no health risks as there is no physical contact.
And, Stock Options Made Easy “Cut-To-The-Chase” Members were well-positioned to benefit; and made 805% potential profit based on a CALL OPTIONS trade.
The COVID-19 crisis has also acted as a catalyst to push some changes in business practices that were already in place - digital signatures and remote work – and Docusign certainly filled the void created. The crisis forced many companies to accelerate their adoption of digital signatures and cloud-based agreement management.
First-quarter results were strong, as revenues increased 39% to $297 million and billings rose 59% to $342 million. eSignature was the main driver for the increase, and is usually the customer's first introduction to the company's offerings. The company views eSignature adoption as sort of a leading indicator for future revenues. The company added nearly 68,000 new customers, bringing its count to almost 661,000.
DocuSign was one of the few companies issuing guidance in the midst of the crisis. The company forecast that fiscal year 2020 revenues would come in around $1.315 billion, which would represent 34% top-line growth. The company didn't directly give earnings per share guidance, but The Street expects DocuSign to earn $0.49 in 2020 compared to $0.31 in 2019, which represents 58% EPS growth.
DocuSign controls about 70% of the e-signature market and was the biggest beneficiary of the increased adoption of digitally approved documents. The stock has gained 96% so far in 2020, while the S&P 500 has just barely gotten back to breakeven.
The recommended options trade for “Cut-To-The-Chase” Members.....
** OPTION TRADE: Buy DOCU JUN 19 2020 90.000 CALL between $6.60 to $7.30.
The Recommended Trade…..
As discussed on Wednesday when I recommended a PUT trade on Docusign Inc (NASDAQ: DOCU), that I expected it to pullback before continuing upwards again – that occurred yesterday with the stock closing down 8.74% to settle at $84.04 – giving a potential profit of 122% - it is now time to look at a call trade from this point.
As previously mentioned the rapidly growing number of coronavirus-infected patient cases across the globe has roiled the equity market. With drugs and vaccines many months away, investors expect global businesses to witness longer and steeper downturns.
However, there could be some respite if the spread of the virus is contained. In wake of this scenario, governments are urging people to strictly adhere to lockdown directives. Hence, it’s advisable to keep an eye on "stay-at-home" stocks that are well poised to gain and are immune to the virus’ impact.
To combat the outbreak, people are being increasingly advised to avoid mass gathering. This has brightened up prospects of companies that are helping people to stay connected. In other words, the businesses of such companies prosper if people spend more time at home - such as Docusign.
DocuSign Inc., headquartered in San Francisco, CA, is a popular name for authenticating documents over the Internet through electronic signature.
DOCU calls can be had at a bargain right now, especially considering recent market volatility. Options players are pricing in relatively low volatility expectations at the moment.
Also, it looks like a round of upgrades could push DOCU stock higher. While 10 of the 13 analysts covering the equity consider it a "buy" or better, three stalwarts still say "hold." Plus, the consensus 12-month price target of $86.46 is a 7.6% discount to current levels.
In the wake of the onset of the coronavirus from China, work-at-home stocks have gained traction lately, including those in the e-signature niche.
Social distancing might be here to stay for a while. In some areas, the stay-at-home mandate could last for months. This scenario sets DOCU stock for potential outperformance, even if the broader market corrects.
The San Francisco based company is now thrust into the spotlight. It can fill a pressing demand as more companies avoid business travel and insist that contracts and other documents be signed electronically.
Without any close competitor, DocuSign is very well positioned to grow and maintain its share in the ~$50 billion TAM opportunity.
To realize further growth opportunities, the company strategically broadened its vision by launching the Cloud Agreement software suite that covers the entire enterprise agreement lifecycle in the first half of 2019. Overall execution and the move towards the enterprise segment have been promising.
In Q4 2020, revenue grew by a staggering 39% YoY, which was 200 bps higher than a year ago. Billings also grew by 40% YoY while the company generated positive cash flows.
Driven by the company's market leadership, strategic M&As, and the addition of key hire Rob Giglio as CMO, it is expected that the company will gain more enterprise traction to sustain its solid growth and achieve its $1+ billion revenue target by the end of 2020.”
Early last year, the company introduced the DocuSign Agreement Cloud, a suite of applications and integrations designed to help organizations automate the entire agreement process, including preparing, signing, acting on, and managing those agreements. This could include (but isn't limited to) job offer letters from human resource departments to job candidates or sales contracts between buyer and seller.
DocuSign believes this represents the "next big cloud opportunity," according to CEO Dan Springer. Over the past several years, DocuSign has broadened these product and service offerings to expand into every aspect of the agreement process.
DocuSign acquired SpringCM in mid-2018 and then expanded the offering, now dubbed DocuSign CLM.
And this year, DocuSign closed on a deal to acquire Seal Software, which brought cutting-edge artificial intelligence (AI) and contract analytics to the table.
DocuSign’s Agreement Cloud has hundreds of pre-built integrations with other applications, including giants such as Microsoft MSFT, Google GOOGL, and Salesforce CRM. DocuSign boasts over half a million customers around the world and on June 4 it topped our Q1 estimates, with sales up 39% and adjusted earnings up over 70%.
DOCU’s fiscal 2021 revenue is projected to jump 34%, with its FY22 sales expected to climb another 27% higher. And its adjusted earnings are expected to soar 55% and 61%, respectively over this same stretch.
Kash Rangan of BofA Securities maintained a Neutral rating for DocuSign, raising the price target from $80 to $165.
DocuSign reported revenue growth of 39% and billings growth of 59%, markedly higher than BofA’s estimates of 30% and 24% respectively, Rangan said in the note.
He added that the quarter was driven by accelerated adoption of the company’s e-signature offering from a broad range of industries as well as a high dollar net retention rate of 119%.
Docusign had its price objective raised by Deutsche Bank from $90.00 to $160.00 in a report issued last Friday morning. Deutsche Bank currently has a buy rating on the stock.
Also, DA Davidson boosted their target price on shares of Docusign from $90.00 to $161.00 and gave the stock a “buy” rating in a research report last Friday.
The e-signature market is far from saturated. DocuSign's management estimates the total addressable market for digital signatures is currently about $25 billion. Compare that to the $974 million in revenue the company generated last year, and the opportunity becomes clear.
The addition of the Agreement Cloud and acquisitions like Seal Software and SpringCM could potentially double DocuSign's total addressable market to $50 billion, making the resulting opportunity for this growth stock even greater.
Are You Ready To Get On-board With A DocuSign Options Trade?
Will DocuSign Shares Continue To Rise?
What Other Trades Are We Anticipating?
Do You Wish To Be Part Of This Action?
Join us here at Stock Options Made Easy, and find out our trades moving forward.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!