DocuSign Danny Feldmeier and Matt Jennings April 16, 2020
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DocuSign Danny Feldmeier and Matt Jennings April 16, 2020
DocuSign Inc. (NASDAQ: DOCU)
Situation Overview Selected Financial Data
§ DOCU as an industry creator and leader
Share Price (as of April 15, 2020) $100.94
– First mover into contract lifetime management (CLM) and
E-signature solutions suite
Equity/Enterprise Value 17.05 BN/17.04 BN
– Tremendous scale in E-signature suite – DOCU has
hundreds of existing contracts with major enterprises and
SMB’s across the world LTM Revenue 974 mm
§ What the market’s missing
– Over-estimation of competitive dynamics LTM EBITDA (163) mm
– Limited downside as DOCU scales during COVID-19
LTM EBITDA Margin (%) (17%)
– Unique industry positioning with established SAAS
businesses (Salesforce, SAP, and ServiceNow)
EV/LTM Revenue 17.5x
One-Year Share Price Performance
110
+2.74%
100
90
80
70
60
50
40
30
Apr-19 Jul-19 Oct-19 Jan-20 Apr-20
Sources: Yahoo Finance, Seeking Alpha, SEC filings
2Non-Commoditized Product in An Industry with A Lot of Green Space
Main Points Competitive Landscape and Existing Products
§ Non-Commoditized Product E-Signature/CLM E-Signature and
Products
– Diligence calls reveal that Revenue CRM Bundle?
there is a substantial
difference between using
DOCU and Adobe Sign
918.5 mm
E-Signature and
CLM Solutions ü
– DOCU is the only SAAS Access E-Signature
business offering an E-
Signature solution with direct
~3.8 mm Solutions through
an Adobe Bundle û
integration in CLM software
CLM Solutions
– Adobe, the closest E-Signature
competitor, only offers
150 mm Specializing in E-
Comm û
services in bundled packages
Total Addressable Market (Revenue mm)
while the CLM industry is
largely fragmented
E-Signature TAM E-Signature/CRM Suite
§ Green Space 919 4 919 150
– E-Signature TAM is around
$25 bn while the TAM for E- Developing an E-
Signature and CRM suite is Signature/CRM
around $40 bn 39,078 suite allows for
23,932 DOCU to explore
– Tremendous green space for
a larger TAM
businesses to operate, no
urgency for competitors to use
competitive pricing models DOCU Adobe TAM DOCU Apttus TAM
3DOCU—Rapidly Expanding E-Signature Solution Suite
Main Points Dollar Net Retention Rate Customers with ACV $300k+
§ Retention Rate: Growing retention 118% 500
437
rate means not only are firms .8%
renewing contracts but expanding 47
116% 400
G R:
DocuSign’s services. Results in
CA 310
compounding revenue growth
114% 300
200
112% 200
§ Culture Hurdle: The largest hurdle
for DocuSign is the culture of pen and 110%
paper signatures. Once electronic 100
signatures become accepted, they are
108%
implemented across the firm 0
4Q18 1Q19 2Q19 3Q19 4Q19
2017 2018 2019
§ Growing Contract Values: As Revenue and Revenue/Customer
DocuSign saves companies money
and time, the contract volumes 3,000 2,709
quickly grow in addition to customer 2,500 2,150
spend
2,000 1,676
1,500 1,275
974
§ Downside Protection: 86% of ACV 1,000 701
519
comes from customers customers with 500
ACVs of +$300,000. Larger enterprises
like this will have large switching -
costs and lower default risk 2017A 2018A 2019A 2020E 2021E 2022E 2023E
Revenue Rev/Customer
Company Filings
4Why Customers Choose DOCU
Selected Quotes from Customers The DocuSign Advantage
§ Pricing: “Adobe has historically
been priced higher than A
DocuSign, for which I pay Adobe is the only significant competitor
“dimes on the dollar” per
transaction.”
§ Integration: “DocuSign’s
overlap with Salesforce is so – Exclusively sold as a package
high that I’m surprised that – Consistently cheaper
deal with other Adobe services
Salesforce hasn’t acquired alternative to Adobe Sign B – Adobe is attempting to compete
them.” due to stand-alone
by offering wider packages
pricing model
instead of lowering price
§ Scale: “We are a reseller of
DocuSign, doing $15-$20 million – Exclusive partnership – Difficult to integrate with third
per year in sales. Our DocuSign with Salesforce and SAP party platforms
sales growth has historically – Considered significantly – Lower accessibility due to pdf
been 15%-25% and has more better with third party C conversion method
recently accelerated to 30%.
integration than Adobe
– 7 of the top 10
DocuSign has positioned itself technology, 18 of the top – Undisclosed market
as a clear market leader with 20 global share. Estimated to be
competitive advantage in pharmaceutical, and 10 D less than 50% of
pricing, integration and scale of the top 15 global DocuSign’s
financial companies
Deustche Bank Sell-Side, Company Filings
5DOCU E-Signature and CLM Integration Strategy
Main Points Four Components behind Integration Strategy
§ DOCU is the only E-Signature
provider offering a full CLM suite –
other providers either don’t offer a
CLM product or E-Signature product Phase Strategy
§ Spring CM Acquisition
1
– Spring CM acquisition gives DOCU – Manually preparing and
the ability to generate and collaborating on agreements
collaborate on contracts across a Prepare Documents for execution; Spring CM
customers’ business
acquisition
§ DOCU E-Signature – The Bread and 2
Butter
– Digitalizing the process of
– Advanced E-signature platform Time Savings manually routing and signing
saves months of time processing paper-based agreements
contracts and simplifies the
contract storage process/record
keeping
3
– Automating entering info from
§ Seal Acquisition Document Action signed documents into other
– Allows DOCU to act as a “digital systems across the company
filing cabinet” 4
– Lowers customer overhead needed – Storing signed documents and
to store documents and eliminates
frictions associated with record
Manage Contracts completed agreements for
keeping business use; Seal acquisition
Company Filings, Diligence Calls
6Diligence and Research Notes
Main Points COVID-19 Security Measures
§ COVID-19: Work from home § Scale: COVID-19 has forced customers § Encryption: Utilizes the strongest
restrictions benefit DocuSign as to ramp up DocuSign usage. Thus encryption and blockchain technologies
customers are incentivized to to contracts will be renewed faster commercially available
expand e-signatures § Culture Change: Work from home is § Certification: ISO 27001 Certification
forcing people to accept e-signatures. which is he highest security certification
This could accelerate growth within for enterprises
firms
§ Security: DocuSign has risen as § Trust: Partnerships with Salesforce and
the leader in e-signatures and § Sticky Revenues: Subscription model SAP display DocuSign’s strong
carries a brand trust that would and high switching costs will resist credibility amongst enterprises
be difficult to match by any new downturn caused by the virus
entrant
Case Study: University of Massachusetts Amherst
§ Case Study: University of
Massachusetts Amherst case Situation: University of Massachusetts contract had expired with
study is an example of Adobe. Chose DocuSign because the pdf format of Adobe caused
DocuSign’s strong moat and accessibility issues
ability to scale to meet
Switching Costs: Mainly comprised of the time and effort of
coronavirus demand
switching software for all administrators and students.
• Success With DocuSign: With an integral e-signature platform, DocuSign has
been able to handle the rapid increase in volume due to COVID-19
• Pricing: Even with a superior and more accessible product, DocuSign is
considerably cheaper than Adobe.
7Comps
Takeaways Growth Comps
§ EV/Revenue: Valuation of 16.9x Market Enterprise EV / Revenue
Company Ticker Capitalization Value 2019A LTM
is expensive, but below SaaS Zscaler, Inc. ZS $8.10 $7.75 21.5x 21.5x
comps that benefit from the Okta, Inc. OKTA 16.08 15.78 26.9x 26.9x
digital WFH transformation Zoom Video
ZM 34.74 33.96 54.5x 54.5x
Communications, Inc.
– 4.6x turns below median MongoDB, Inc. MDB 8.08 8.08 19.2x 19.2x
Twilio, Inc. TWLO 13.32 12.11 10.7x 10.7x
§ COVID-19: Price has room for DocuSign, Inc. DOCU $16.44 $16.45 16.9x 16.9x
appreciation as investors shift
Low $8 $8 10.7x 10.7x
cash into companies that will Mean 16 16 26.6x 26.6x
grow due to WFH restrictions Median 13 12 21.5x 21.5x
for hedging purposes High 35 34 54.5x 54.5x
Mature Comps
Enterpris
§ Mature Comps: Comps Market EV / Revenue EV / EBITDA
e
historically remain relatively Company Ticker Cap Value 2019A LTM 2019A LTM
expensive to the market even Adobe, Inc. ADBE $153.55 $154.09 13.2x 13.2x 37.8x 37.8x
after achieving sustainable Salesforce.com, Inc. CRM 138.32 136.63 8.0x 8.0x 60.0x 60.0x
operating and EBITDA margins ServiceNow, Inc. NOW 52.78 52.22 15.1x 15.1x 177.5x 177.5x
DocuSign, Inc. DOCU $16.44 $16.45 16.9x 16.9x – –
Low $53 $52 8.0x 8.0x 37.8x 37.8x
Mean 115 114 12.1x 12.1x 91.7x 91.7x
Median 138 137 13.2x 13.2x 60.0x 60.0x
High 154 154 15.1x 15.1x 177.5x 177.5x
8Valuation – False Perception of an “Expensive Business”
Valuation Statistics
Market Enterprise EV / Revenue – DOCU has recently started trading around
Company Ticker Capitalization Value 2019A LTM
17x revenue while comparable growth
Zscaler, Inc. ZS $8.10 $7.75 21.5x 21.5x
Okta, Inc. OKTA 16.08 15.78 26.9x 26.9x
SAAS companies trade in the mid to low
Zoom Video Comm., Inc. ZM 34.74 33.96 54.5x 54.5x 20’s
MongoDB, Inc. MDB 8.08 8.08 19.2x 19.2x
Twilio, Inc. TWLO 13.32 12.11 10.7x 10.7x – DOCU will sustain its trading multiple as its
first mover advantage, lack of competition,
DocuSign, Inc. DOCU $16.44 $16.45 16.9x 16.9x and resilience against COVID-19 make it a
strong player among SAAS comps
Low $8 $8 10.7x 10.7x
Mean 16 16 26.6x 26.6x – High barriers to entry, high pricing power,
Median 13 12 21.5x 21.5x and gradual margin expansion justify a
High 35 34 54.5x 54.5x higher trading multiple
Operating Statistics
Revenue Revenue Growth Stock Price
Company Ticker 2019A LTM '18-'19A LTM DCF Comps
Zscaler, Inc. ZS $360 $360 48.2% 48.2% EV/Rev (TTM
Okta, Inc. OKTA 586 586 46.8% 46.8% Sum of FCF 2,265 2026) 10
Zoom Video Comm., Inc. ZM 623 623 88.9% 88.9% Terminal EV/EBITDA
MongoDB, Inc. MDB 422 422 57.9% 57.9% Value 24,840 (2026) 40
Twilio, Inc. TWLO 1,135 1,135 74.5% 74.5% EV 27,105 EV 24,326
Debt 465 Debt 465
DocuSign, Inc. DOCU $974 $974 38.9% 38.9% Cash 9,928 Cash 9,928
Equity Value 36,568 Equity Value 33,789
Low $360 $360 46.8% 46.8%
Mean 625 625 63.3% 63.3%
Stock Price 201.52 Stock Price 186.21
Median 586 586 57.9% 57.9%
High 1,135 1,135 88.9% 88.9% 4/10 Stock 4/10 Stock
Price 90.63 Price 90.63
Upside 122% Upside 105.5%
Seeking Alpha, Yahoo Finance, Company Filings
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