Analysis

Why DocuSign Stock Dropped Today

It technically beat expectations, but it didn’t give investors much to look forward to.

Shares of software company DocuSign (DOCU -4.91%) dropped on Friday after the business reported financial results for its fiscal first quarter of 2025. As of 9:45 a.m. ET today, DocuSign stock was down about 8%, after being down almost 11% earlier in the day.

A beat, but not much of a raise

In the first quarter (which ended in April), DocuSign actually beat its guidance by generating revenue of $710 million. That was up 7% year over year and was almost $2 million ahead of the high end of management’s expectations. Revenue in international markets is growing faster, at 17%.

However, many investors and analysts were left uninspired with DocuSign’s results. For example, Bank of America analyst Brad Sills called the report “lackluster,” according to The Fly. And to Sills’ point, the company kept most of its full-year guidance the same, showing that the first-quarter results were basically what management expected, even if it technically was a small nominal beat.

Investors just aren’t excited right now

DocuSign stock trades at a price-to-sales (P/S) valuation of about 4, which sounds cheap for a company with high profit margins. But at the end of the day, management only expects about 6% top-line growth in fiscal 2025.

Some investors might point out that DocuSign had first-quarter free cash flow of $232 million, which is really good. However, this number was boosted because the company had $143 million in stock-based compensation charges — a whopping 20% of revenue.

DocuSign is repurchasing shares with its free cash flow. Nonetheless, it’s not doing much to boost shareholder value because it’s only offsetting the stock that it’s aggressively paying to its workers.

Therefore, it seems like many of the positives with DocuSign also have an asterisk that prevents investors from getting too excited. It seems like the current business trends will continue this year. Shareholders will hope that things such as international growth will start making a bigger impact beyond fiscal 2025.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and DocuSign. The Motley Fool has a disclosure policy.

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