Due to high inflation data, the market had a big selloff on Tuesday and now seems to await the Federal Reserve Board statement next Wednesday to determine the direction of monetary policy. Fortune published an article on Tuesday, 9/13/2022 that the top 10 of the world's wealthiest people, such as Elon Musk, Jeff Bezos, Warren Buffett, and Bill Gates, got $50 billion erased from their combined assets in ONE day. On the same day, Cryptocurrency Luna and Terraform Labs' Stablecoin also lost $40 billion. Now Luna CEO and founder, Do Kwon, has also been arrested by South Korean authorities with potential charges of violating South Korea's capital market law.
It is uncontroversial to say that many newfound millionaires from the past few years just now became un-millionaires this week. Remarkably, individuals who managed their portfolio without a selection hypothesis were probably the sober sellers on Tuesday. Investors cannot expect the Consumer Price Index (CPI) would drop on Tuesday and that the market would run efficiently due to the Fed's increasing interest rates in the recent past. Raising interest rates to combat inflation is a slow process.
During my recent business trip to the East Coast, Massachusetts Institute of Technology, and Havard University, I discovered that this country still delivers the world's most brilliant and creative talents. Without a shadow of doubt, I still believe this country will continue to be the standard of innovation for the rest of the world. However, one typical drawback I have scrutinized from many outstanding ingenious US-based companies is that they don't often know how to monetize their inventions. In this blog, I will discuss DocuSign (symbol: DOCU) as an example.
DocuSign is the pioneer of eSignature and cloud agreement management platform and is the world's #1 eSignature market leader. Its website also says it offers electronically notarized agreements, contract lifecycle management, and a partnership with Salesforce and Microsoft. As I review the Analyst's word on The Street on September 13, 2022, DocuSign has 2 (Buy), 2 (Outperform), 14 (Hold), 1 (Underperform), and 1 (Sell) ratings, while the stock has dropped 50+% year to date.
Below are points crossing my mind as I monitor this stock closely.
1. DocuSign has over a billion users worldwide, but only 1.28 million are paying; perhaps it needs improvement for post-covid business plans. Lower pricing is never the right motivation to attract new revenue; product quality, customer service, and ongoing expense awareness are. If this is not addressed by next year, it will decrease DocuSign's ability to generate free new cash flow to beat inflation. I would like to see a new pricing model be considered. For example, create a new premium subscription with a higher monthly fee but enhance access to personalized support with a free trial on electronically notarized agreements and contract lifecycle management. I believe this will increase short-term cash revenue and its global branding. Canada is 35% of DocuSign's international gains and has continued to grow yearly despite the post-covid time; maybe starting a pilot program there?
2. With almost 67% of the workforce being salespersons, where are the customer service and technical support? Are you expecting salespersons to service existing accounts with certified technical skills while concentrating on selling new accounts? Is it a common industry expectation? Retention and customer care should be the new marketing emphasis during the post-covid economy. Most customers could not quickly move to another expensive carrier such as AdobeSign, HelloSign, or SignNow when they had already set up the process with DocuSign. It is an attainable goal.
3. With ex-CEO Dan Springer and many salespeople that have already left, a worse management nightmare has already been priced into the stocks. It's time to uplift leadership in command. I do like Maggie Wilderotter as interim CEO. I like her resume as the current board of directors of Costco Wholesale Corp and Lyft. She was also the former board of directors for Dreamworks Animations, Procter & Gamble Company, and Hewlett Packard. Since Maggie Wilderotter's interim management, DocuSign shares have gained 8.3% over the past three-month period, with a cash balance of $637.2 million. But no one ever heard of Maggie's public relations (PR) skill. She will need to do the job she has been asked to accomplish: select a competent management team and plan the cash on hand. I would like to see a significant portion of the $637.2 million cash reserved in short-term treasury for a minimum return of 2% to 3%. I believe the public is eyeballing the new management team's ability to handle finances responsibly.
4. Subscription revenues came in at $605.2 million, up 23% yearly in this recent earning. However, I foresee professional service revenues decreasing next year due to the cooling economy. Therefore, cutting the sales workforce in professional services is not avoidable. It is a responsible business strategy for adjusting the operation margin and maintaining the non-GAAP operating profit. Furthermore, since international revenues increased 35% from last year's fiscal report and contributed 25% to total revenues, I think most analysts like to see how the global political risk can affect future international billing.
Reference: DocuSign Investor relation
Reference: Zacks Analyst Blog
If DocuSign can address the above four subject matter, it is still a great company to hold for the long term. Another potential scenario is a merger or acquisition with companies like Zoom or Google, which shall help DocuSign maintain its outlook on new growth expectations. However, if I were sitting on the board today, I would not pick Adobe or SignNow to merge with because the government might slap Docusign with an antitrust lawsuit.
In conclusion, DocuSign is a second-to-none contract management software. I issue a Hold rating. It has grown tremendously in the past five years, and I realize it will not produce another 100% growth rate in the next year or two. However, the current market condition is inefficient in many ways, and so does many other growth companies facing the same challenge. Suppose you believe we are currently in a weak or ineffective market hypothesis. In that case, the technical and fundamental analysis will not prevail in investment decision-making to sell or hold DocuSign. I don't need to tell you that its chart is all over the map but generally down. Using past information to decide on future investing is not reliable. This is because the future is unknown, and investing is based on expectations. A realistic expectation is based on reliable research and studies. Now is a critical time to delegate the administration of your portfolio management to a trusted professional to help manage risk according to your financial circumstance. However, remember that even a proficient money manager can't help the investor erase the risk. But your chosen professional can help you tailor an adequate risk-adjusted portfolio.
Disclaimer:
Kimmy is not registered with any political party. Any views or opinions represented in this blog belong solely to the blog owner and do not represent those of people, institutions, or organizations that the owner may or may not be associated with within a professional or personal capacity. Any views or opinions are not intended to malign any religion, ethical group, club, organization, company, or individual. As of the release of this article, Kimmy Wan holds DocuSign in her account. Kimmy Wan is not receiving compensation for this article, and she has no business relationship with the stock mentioned in this article.
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