2. DocuSign, Inc. (NASDAQ:DOCU)
Number of Hedge Fund Shareholders: 34
DocuSign, Inc. (NASDAQ:DOCU) has become more popular among retail investors in recent months at the same time it’s seen a notable decrease in institutional ownership. The number of funds long DOCU has fallen by more than 50% since the end of 2020. Phillippe Laffont’s Coatue Management was the firm’s largest shareholder on March 31, owning 4.33 million shares.
DocuSign, Inc. (NASDAQ:DOCU), the market leader in digital document signing, has attracted the interest of retail investors after falling out of favor with the broader market in recent quarters. DocuSign has seen a sharp decline in growth this year compared to its pandemic-fueled heights of 2021, when business operations surged online, driving the need for its e-signature services. It’s also facing growing competition in the space, though it still controls about 70% of the market. For its fiscal 2024, the company expects billings to grow by just 3-4% and revenue to rise by 8%. While the stock is well off its all-time highs, the valuation isn’t overly attractive nonetheless, at 24x forward earnings.
Rowan Street Capital is one of the firms that has sold off DocuSign, Inc. (NASDAQ:DOCU) in recent quarters and explained its decision to do so in the fund’s Q3 2022 investor letter:
“In the case of DocuSign, Inc. (NASDAQ:DOCU), the “Management” part no longer satisfies our requirements in order to remain in our investment portfolio. In the past 6-9 months, the company has had a huge turnover in both employees and upper management. In June of 2021, the board decided to get rid of Dan Springer, who had been a CEO of DocuSign since 2017 and took the company public in 2018. We found this decision strange as we thought that he actually did a great job growing the company over the past 5 years (revenues grew almost 5x from $519 million in 2017 to an estimated $2.4 billion this year).
Dan was faced with a very difficult, unprecedented operating environment just like all the CEOs of SaaS companies. From Q2 ‘20 until Q3 ‘21, during pandemic shutdowns, growth exploded from about 30% to 60%+, as there was a ton of pull-forward demand. The business doubled in about 6 or 7 quarters! As the world opened up after the pandemic, growth slowed quite a bit especially in comparison to these abnormal pandemic quarters. However, on a 3 year CAGR basis, growth was still very healthy (sales grew from $974 million in 2019 to $2.5 billion expected in 2022). They also had to dramatically increase their sales force (biggest expense) to keep up with all this unexpected growth. New employees did not have a chance to be trained properly, but it still worked well as they had demand easily coming to them. Now that there is a very different demand environment, a lot of this salesforce either needs to be retrained for normal sales cycles (land and expand) or be replaced. Employee turnover also compounded with a lot of people who were with a company when stock was going up and up, and now that the stock is down so much from the highs, their stock options are no longer valuable. Having said this, we are not sure any other CEO could have done a better job managing through such a difficult operating environment…” (Click here to read the full text)
