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DocuSign Isn’t Ready to Pull From the Shredder

DocuSign Isn’t Ready to Pull From the Shredder #DocuSign #Isnt #Ready #Pull #Shredder Welcome to Lopoid

The pandemic had sparked a big jump in demand for DocuSign’s services.

Photo:

Tiffany Hagler-Geard/Bloomberg News

The pandemic didn’t make

DocuSign

DOCU 4.20%

a household name like Zoom. But the aftermath has been just as brutal.

The provider of cloud-based document management services has shed 80% of its market value from its peak last year. That is identical to what

Zoom Video Communications

has given up since hitting its own peak in late 2020 just before the announcement of the first Covid-19 vaccines. The pandemic sparked a big jump in demand for both services, but DocuSign’s should have proven to be the more resilient of the two. More in-person meetings mean fewer Zoom calls, but companies forced to reduce their use of paper documents in a remote world are unlikely to go back to tedious paper-pushing even as offices reopen.

Yet DocuSign’s last three quarterly reports have proven to be disappointments, largely due to issues with the company’s ability to close sales deals. DocuSign missed its own billings forecast for its fiscal third quarter reported in December, and its latest report earlier this month included a cut to projected billings for the current fiscal year ending in January. DocuSign now expects billings for the year to grow about 7%—after averaging 41% annual growth over the last five years.

And much more work seems to be ahead. DocuSign said Tuesday that Chief Executive

Dan Springer

has agreed to step aside, with board Chairwoman

Maggie Wilderotter

filling the role on an interim basis while the company searches for a permanent replacement. Such a move is unsurprising given the company’s continued execution problems. But it also strongly suggests a near-term fix isn’t at hand. Alex Zukin of Wolfe Research noted that even if DocuSign were able to attract a “high profile turnaround specialist” to the CEO role, a turnaround would take “many quarters to successfully execute.”

DocuSign’s shares fell initially on the news but rose 4% on Wednesday. A CEO switch could presage a sale or some other type of deal in the future. But Mr. Zukin is doubtful, noting that DocuSign likely already shopped itself around given Mr. Springer’s financial background. He also said the stock’s current valuation of around five times forward sales is already on the high end of his ranking of deals by financial buyers for software companies with single-digit growth projections.

Also, any buyer would have to contend with macroeconomic factors, plus competition from much deeper pockets. Rising interest rates are eating into mortgage and refinancing deals—a major source of demand for DocuSign’s services. And competition from Adobe is also rising. Analysts for Stifel Nicolaus wrote Wednesday that Adobe’s document services have “helped the company win market share as organizations consolidate the number of vendors they subscribe to solutions from.” Adobe now spends about $4.6 billion a year just in sales and marketing expenses—more than double DocuSign’s current annual revenue. For DocuSign, getting customers to sign on the dotted line is going to get tougher no matter who is running the show.

Write to Dan Gallagher at dan.gallagher@wsj.com

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