DocuSign Earnings: May Have Turned the Corner With a Nice Clean Quarter

Narrow-moat DocuSign DOCU reported a good first quarter, with both top line and non-GAAP operating margin exceeding the high end of guidance. Operating margin benefited from recent headcount reductions, although guidance indicates margins will decline as the year progresses and investments ramp. Management said the environment is largely unchanged, with various pockets of strengths and weaknesses. Despite the macroeconomic headwinds, results and guidance indicate DocuSign has corrected course in terms of focusing on margins, streamlining the sales approach, and accelerating product innovation. Based on results and guidance, we fine-tuned our model and raised our fair value estimate to $74 per share, from $72. We see shares as attractive for patient investors, but continue to prefer some of our wide-moat names as macroeconomic uncertainty persists.

Total revenue grew 12% year over year to $661 million, exceeding the high end of guidance at $643 million. Subscription revenue grew 12% year over year to $639 million, while services grew 14%. International expansion remains encouraging, with 17% year-over-year growth, representing 25% of total revenue. Similar to last quarter, the firm faces headwinds in the financial services and real estate verticals due to exposure to interest rates and mortgages, while manufacturing and services remain resilient. Further, enterprise was a little more challenging, while smaller customers were more resilient, given the self-serve improvements in the selling motion.

Billings were $675 million, up 10% year over year based on good renewals. Net dollar retention again declined, this quarter to 105%, and is expected to tick down further as the year unfolds. As a reminder, DocuSign’s normal range is 112%-119%, but we have anticipated this decline as macroeconomic conditions are taking their toll.

Non-GAAP operating margin hit a record high of 26.6%, compared with 17.4% a year ago, and was driven by recent headcount reductions.