Original title: DocuSign: dominate the electronic signature market, the proper source of annual revenue of more than $1 billion: 36Kr Holdings

Editor's note: this article is from the official account "Digital work" (ID:workhacker) of Wechat, authored by zgcgdg,36 Krypton.

Digital work WORKHACKER original

Author | DONG

Edit | XIXI

Recently, a number of U. S. stock companies in the field of digital work have released financial results, and their share prices are basically rising. Zoom, for example, is still the leader. DocuSign, the company focused on in this article, also continues to benefit from the ongoing digital transformation, easily beating analysts' expectations. On the other hand, the company's stock is no longer undervalued, and the market is expected to face a lot of pressure.

A quick overview of the company's business

DocuSign was founded in 2003 and was listed on Nasdaq in 2018. Last year, the company announced the launch of the DocuSign protocol cloud platform, a range of services that help customers manage the entire protocol workflow. Recently, to further enhance its product suite, DocuSign also acquired Seal Software, a provider of protocol analysis and AI technology services.

DocuSign's strong growth in the past few years has benefited from its success in the electronic signature business, where its market share is about 70 per cent. DocuSign is well ahead of other eSignature competitors, such as Adobe Inc Sign or Hellosign.

The company is now using its market leadership to consolidate its position in agreement management. Protocols are the core requirement of most enterprises, and DocuSign (through its products) aims to simplify the protocol management needs of organizations.

In related documents, the company describes its business as follows:

We offer the world's number one electronic signature solution as the core of our broader software suite for automating protocol processes (we call it the DocuSign protocol cloud). It aims to enable companies of all sizes and industries to quickly and easily produce digital products for almost every agreement, approval process or transaction. It provides comprehensive functionality across electronic signatures and handles a wider range of protocol processes.

More than 660000 customers and hundreds of millions of users worldwide now use DocuSign to create, upload and send documents for electronic signature by multiple parties. The DocuSign protocol cloud allows users to complete approvals, agreements and transactions faster by building end-to-end processes.

-- DocuSign eSignature integrates with popular business applications, or you can use our API embedding.

This DocuSign protocol cloud enables our customers to automate and simplify their critical business workflows to save time and money while maintaining security and legal compliance.

We provide access to our platform on a subscription basis, and the price depends on the features the customer needs and the number of "envelopes" configured.

Similar to physical envelopes used in the past to mail paper documents, envelopes are digital containers that send one or more documents to one or more recipients for signature or approval. Our customers have the flexibility to put a large number of documents in envelopes. For many use cases, such as buying a house, multiple envelopes are used throughout the process. In order to increase customer influence and adoption, we also provide some time-limited or feature-limited versions of the platform free of charge.

From the perspective of industry scale, the total addressable scale of the electronic signature market is about $25 billion, which is still expanding. If you add in the agreement lifecycle management market, the global addressable market for the two markets amounts to as much as $50 billion.

In terms of DocuSign's own growth, revenues have risen from $250 million in 2016 to $974 million in 2019, up 40 per cent from a year earlier. The company has maintained a compound annual growth rate of more than 40% over the past five years. During the same period, gross profit margin expanded from 64% to 71%.

According to last year's data, DocuSign's market penetration has just reached 3.8 per cent. This shows that DocuSign still has a long way to go to expand its market share through better products and international expansion.

ESignature is still in its early stages and the entire addressable market is likely to continue to grow in the future.

One of the core support tools for working from home

There are still many bright spots in financial data:

Total revenue was $297 million, up 39 per cent from a year earlier. Subscription revenue was $280.9 million, up 39 per cent from a year earlier. Professional services and other income was $16.1 million, up 29% from a year earlier.

Gross profit margin was flat at 79%.

Net cash generated from operating activities increased to $59.1 million from $45.7 million in the same period last year, and free cash flow increased from $30.4 million to $32.8 million. At the end of the quarter, liquidity was $898.3 million.

Total revenue from the international market outside the United States rose 46% year-on-year to $55 million.

Total revenue is expected to be between $316 million and $320 million in the second quarter and between $1.313 billion and $1.317 billion in fiscal year 2021.

Business highlights:

More than 10000 net new direct customers and nearly 58000 self-service customers have been added, bringing the total number of paying customers worldwide to nearly 661000.

The net retention rate of US dollars reached 119 per cent. The number of customers with more than $300000 in ACV increased by 46% year-on-year to a total of 473 customers.

DocuSign protocol cloud: the protocol cloud editor can use Salesforce.com Inc data fields to help create protocol templates; identification can capture identity document information for companies in regulated industries; and extend DocuSign Payments to all countries and currencies supported by its payment gateway partners.

Seal Software acquisition completed. DocuSign completed its acquisition of Seal software on May 1st, and Seal Software is one of the technology providers specializing in contract analysis and artificial intelligence. DocuSign is now committed to bringing the power of Seal's AI engine to DocuSign CLM first and over time into the entire portfolio to make the protocol cloud intelligent.

DocuSign's performance has been recognized by Wall Street. As soon as the financial report came out, Wedbush said that it would continue to be bullish on DocuSign and maintain DocuSign outperforming the market rating with a target price of $165.00.

Dan Ives, an analyst, believes that the company's value proposition around its core electronic signature solution is resonating with businesses in the foreseeable future of the WFH trend.

He believes that the emergence of a large number of telecommuting will provide a strong growth background for DocuSign for at least the next 6 to 12 months.

Springer, CEO of DocuSign, said, "the main reason for the strong performance in the first quarter is the increased demand for signatures from organizations, which suddenly need a way to sign and manage agreements wherever they are. In general, electronic signatures are the first step for many customers to join us in a broader digital transformation. Therefore, from a financial point of view, we believe that the increase in eSignature penetration indicates the expansion of the protocol cloud in the future. "

The epidemic has become a catalyst for a greater digital transformation of end-to-end protocol processes. We always believe that this shift will take place and that a unified protocol platform is needed. Once they have taken the first step of digital transformation (they will realize the benefits of time, cost, and customer experience, etc.), they rarely look back.

Of course, some enterprises and industries will continue to shrink. But even so, our view of the business is still optimistic. As the digital transformation is still a top priority, we will get off to a good start in the second quarter.

During the earnings call, the company shared a case directly related to the rescue of the epidemic. They helped the Labor Department of a state distribute more than $500 million in aid to more than 500000 residents in less than a week.

In addition, they "enable hundreds of national and regional financial institutions in the United States to accept applications for small business-managed loans more effectively." At one of the large banks, the company participated in more than 500000 loan applications, 75 per cent of which were signed in less than 24 hours.

The effect is still leveraged.

Product integration and customer layering

DocuSign has grasped three key points in developing its business.

The first point is integration with other business systems.

SaaS economy is also API economy from one point of view. For participants, the degree of integration with other competitors is very important. This is especially true in the field of electronic signature protocol tools, because simple signatures are not meaningless and are valuable only when combined with processes such as business, office, finance, and so on.

Many users are building workflows that integrate with our software and take advantage of API, and such applications tend to be very sticky.

According to the company, 2/3 of current traffic comes from its integrated business systems (such as SAP and Salesforce.com and Workday).

We provide more than 300 off-the-shelf preset integrations with applications already in use by many customers, including those provided by Google,Microsoft,NetSuite,Oracle,Salesforce,SAP,SAP SuccessFactors and Workday.

-- (when the systems are integrated) people start doing business on DocuSign. If it is a back-office use case, you can manage processes such as finance. If the front desk business, such as real estate mortgage products, involves multiple participants, the ROI is high for us, but for them, they can have a good customer experience. Our customers like to use DocuSign with their customers.

The second point is to enter the entire agreement cloud market at the right time after gaining a firm foothold in the electronic signature market.

When you consider the work of the entire protocol cloud, eSignature is often the entry point. In fact, if we consider the broader CLM capabilities, if you don't have a digital protocol with a digital signature, it's hard to consider a digital solution for managing contracts and agreements. So,. In the coming quarters, (existing customers) will provide us with a lot of opportunities to cross-sell and expand the overall agreement cloud.

Currently, DocuSign is the only company that offers a complete product (from eSignature to CLM) in the enterprise agreement cloud. It is also a universal product that can be integrated with more than 350 other applications.

At the same time, the other two competitors, Adobe Inc's Sign and Dropbox's Hellosign, lag too far because they lack strategy for their core businesses and are only a small part of the $25 billion electronic signature market.

Analysts believe that DocuSign's adoption of protocol cloud in the enterprise market will enhance DocuSign's advantage as a market leader, which will give him more initiative in product pricing and even future profit growth.

The third point is to layer the customers and optimize them.

SaaS's layering of customers is a routine operation that allows the company's revenue to perform better in terms of stability, profit margins and ROI. (without going into detail here, those who are interested can contact us for more details. The follow-up does not rule out the launch of a series of articles).

For DocuSign, they also have their own characteristics in their customer base.

We have a wide customer base, covering all industries and countries, and the customer concentration is not high. No customer accounts for more than 10% of total revenue.

We initially focused on selling our electronic signature solutions to commercial enterprises and VSB, and then expanded our focus to target corporate customers. To demonstrate this growth momentum, the number of customers with annual contracts worth more than $300000 (billed) has increased from approximately 30 customers on January 31, 2013 to 473 customers on April 30, 2020. Customer types have different purchase modes. VSB tends to become a customer quickly, requiring little sales or customer support interaction, but produces a smaller average contract value, while commercial and corporate customers usually need longer sales cycles, greater contract value, and greater expansion opportunities.

This adjustment of DocuSign has already had an effect in the last quarter. The number of customers with more than $300000 in ACV grew 41 per cent year-on-year in the fourth quarter of 2020. In addition, the significant growth in high ACV customers also had a positive impact on operating cash flow / OCF, growing 52% to $116 million in fiscal year 2020.

Generally speaking, DocuSign now has a greater dominance in the electronic signature market, and has taken the initiative to open up another battlefield. Based on the cross-selling of existing customers and the acquisition of more customers, DocuSign's continued growth this year should not be a problem, and it should not be a problem to exceed its revenue target of 1 billion.

Judging from the performance of the capital markets, DocuSign's share price has risen more than 90 per cent since its March low and is now trading at 25 times sales, and some investors believe the stock is highly valued on a current earnings basis. However, some people think its valuation is reasonable because of the company's strong fundamentals, huge future growth opportunities and subscription-based business model. [END]

Financial report PPT excerpt