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When the COVID-19 pandemic triggered widespread lockdowns and social restrictions in 2020, businesses turned to Docusign (DOCU -4.90%) to help them remotely draft, negotiate, and close commercial agreements. The soaring demand for its platform drove its stock to a record high of $310 in late 2021, a tenfold increase from its initial public offering (IPO) price of $29 just three years earlier. However, Docusign suffered a sharp slowdown in demand for its platform when social conditions mostly returned to normal in 2022, and its sales growth has been sluggish ever since. As a result, its stock is down 78% from its peak, closing at $68.41 last Friday, Sept. 4.
Docusign's new Intelligent Agreement Management (IAM) platform could be the key to turning its fortunes around. It uses artificial intelligence (AI) to transform contract management processes for businesses. Around 65% of organizations still use four or more tools to manage their agreement workflows, creating friction and inefficiencies. Deloitte found that businesses were collectively wasting around 55 billion hours per year due to poor contract management processes, resulting in $2 trillion in lost economic value. IAM features a unique digital repository called Agreement Manager, where businesses have collectively stored over 300 million contracts. It uses AI to extract valuable information from each document and make it discoverable via a search function, helping managers quickly find expiry dates and stop auto-renewals for contracts they no longer need.
In August, Docusign expanded IAM significantly with new features, including an AI assistant powered by Iris, which answers questions about any contract within the organization's ecosystem, and Agent Studio, which allows businesses to build custom AI agents to help draft, negotiate, and close agreements. IAM launched in 2024, with around 40,000 of Docusign's 1.9 million paying customers having adopted it so far, leaving significant room for growth.
Docusign generated $875.7 million in revenue during its fiscal 2027 second quarter (ended July 31), representing a modest 9% increase over the year-ago period. However, management is focusing on profitability, with total operating expenses growing by just 2%, resulting in a 23% increase in GAAP net income to $77.7 million and an adjusted net income of $224.4 million. Docusign's stock is currently trading at a price-to-sales (P/S) ratio of 4.1, a steep discount to its average of 11.8 since the company went public in 2018. Management forecasts $3.55 billion in total annual recurring revenue (ARR) by the end of fiscal 2027, with around 18.5% expected to come from IAM alone. This indicates explosive growth potential for IAM, suggesting Docusign stock could be a solid buy at the current price.
Source: The Motley Fool
