DocuSign Stock Crashes After Earnings — Do I Still Think It’s a Buy?

$Docusign(DOCU)$

In today’s articles, I want to discuss DocuSign (ticker: DOCU), which just released its latest quarterly earnings. Unfortunately, the market didn’t take the news well—DocuSign shares dropped roughly 20% immediately after the earnings release. As someone who has had this stock rated as a Buy all year long in 2025, I’ll be upfront: that drop was frustrating and disappointing.

Now, a price move like that always warrants a closer look. So in this episode, I’m going to break down what happened in DocuSign’s earnings report, why the market reacted the way it did, and whether I still view the stock as a buying opportunity. We’ll walk through the revenue numbers, billings, profitability metrics, cash flows, and management’s commentary. I’ll also share my updated DCF valuation, which I use to estimate the intrinsic value of the stock.

Finally, I’ll give you my updated buy/sell/hold recommendation based on the latest data—and let you know whether this recent drop has changed my long-term thesis.

DocuSign Was Already a 2025 Underperformer — Now It’s Even Worse

Before this latest earnings report, DocuSign had already been under pressure in 2025. Despite a modest rebound—up about 5% in intraday trading on June 9th—the stock is still down more than 12% year-to-date.

This is frustrating because I’ve rated DocuSign a Buy for the entirety of 2025. My last formal update was on May 23rd, where I reiterated that I believed the stock was undervalued and offered compelling long-term upside. As always, I track all of my recommendations transparently and revisit them publicly—win or lose.

Unlike some creators who focus only on their biggest success stories (like still talking about recommending Tesla back in 2017), I believe in showing both sides of the investing journey. Some picks outperform expectations, others fall short. The key is staying honest, following a disciplined research process, and learning from both success and failure.

Let’s Break Down the Numbers

Here’s what DocuSign reported for the quarter:

• Revenue: $764 million → Up 8% year-over-year, which isn’t bad at all on the surface. That’s still respectable growth for a relatively mature SaaS company.

But here’s where the market got spooked:

• Billings: $740 million → Only a 4% year-over-year increase. This was well below expectations and sent a negative signal about forward-looking demand.

Now, if you’re wondering why billings are such a big deal—here’s a quick explanation.

Revenue is what's recognized for services already rendered during the quarter. Billings, on the other hand, are new contracts signed—commitments from customers to use DocuSign’s services in the future. These contracts eventually convert into revenue over time.

So when billings come in soft, the market interprets that as potential weakness in the sales pipeline and future growth trajectory.

Management’s Explanation: Transitioning to AI-Based Products

According to the company, the shortfall in billings wasn’t due to lost clients or weakening demand. Instead, management said that DocuSign is accelerating its transition to a newer generation of products built with AI capabilities at the core.

This rapid product shift caused some short-term disruption in the sales cycle as customers delayed contracts or re-evaluated how to implement the new features. While this dynamic is arguably a good sign—it shows DocuSign is innovating and modernizing—the transition came sooner than expected and caused a temporary slowdown in bookings.

That said, management reaffirmed their confidence that billings growth will reaccelerate in the coming quarters as customers adopt the new products more broadly.

My Take: The Long-Term Trend Is Still Intact

I believe this explanation is reasonable. More importantly, it doesn’t change the long-term structural trend: e-signatures are here to stay, and their adoption will only increase globally over the next decade.

While we’ll likely never reach 100% electronic signatures globally, I expect the figure to surpass 90% in most developed markets. It’s simply too convenient, too scalable, and too cost-effective to go back to physical paperwork.

From personal experience—I work at a university, and virtually every contract I sign is done electronically. It’s faster, easier to track, and significantly less of a hassle than dealing with wet ink and in-person meetings. In fact, if a counterparty insisted on an in-person signing, I’d likely ask for additional compensation just to offset the lost time.

This is the broader dynamic playing out across enterprises, governments, and academic institutions worldwide. And with DocuSign as the undisputed market leader in e-signature solutions, it remains a key beneficiary of this secular tailwind.

But What About Competition?

Now, I do want to address a common concern: competitive pressure.

The total global spend on electronic signatures is currently less than $100 billion per year. That’s small when compared to markets like digital advertising ($1T+) or home improvement. Because of this limited TAM, large tech companies may be hesitant to aggressively compete in the space—there just isn’t enough upside to justify the costs.

This plays in DocuSign’s favor.

It would be far more logical for a larger tech player to acquire DocuSign rather than try to build an in-house competitor. DocuSign is a pure play in this space with a massive installed customer base, strong integrations, and brand equity. It's far easier to buy than to build here, and that keeps the competitive moat relatively secure for now.

Financial Quality and Shareholder Returns

Beyond revenue and billings, there were some other key metrics in the earnings report:

• EPS came in at $0.34, more than doubling from $0.16 in the same quarter last year.

• Operating cash flow was $251.4 million, slightly down from $254.8 million YoY.

• Free cash flow was $228 million vs. $232 million YoY.

The small decline in cash flow can be tied to the weaker billings. When new contracts come with upfront payments, slower bookings naturally result in reduced cash collection.

That said, DocuSign continues to generate excellent cash flow margins. Roughly one-third of revenue converts into free cash, thanks to the company’s asset-light SaaS model. They don’t need to spend heavily on CapEx or physical infrastructure, which allows them to funnel cash toward shareholder returns.

In fact:

• The company repurchased $183 million worth of shares in the most recent quarter, compared to $149 million last year.

• They also expanded the buyback authorization by $1 billion, signaling long-term confidence in the stock’s value.

And with $1.1 billion in cash on the balance sheet and no immediate capital needs, the company is in a strong position to keep returning capital to shareholders going forward.

Guidance for Next Quarter

Management is guiding for:

• Revenue: $779 million

• Billings: $762 million

These are both midpoints of their guidance range, and if achieved, would represent a meaningful improvement over the current quarter. The billings growth, in particular, would help re-establish the company’s growth narrative.

My Valuation: What Is DocuSign Worth?

I updated my proprietary discounted cash flow (DCF) model following the earnings release.

Based on my projections, I estimate fair value for DocuSign stock at $99.98 per share.

With the stock currently trading around $78.80, that implies over 25% upside from current levels.

I also cross-checked valuation with standard metrics. On a forward P/E basis, DocuSign is trading at 21.75x, which is relatively modest for a company with high margins, a sticky customer base, and meaningful operating leverage.

So whether I evaluate the stock using intrinsic valuation (DCF) or market multiples (P/E), the conclusion is the same: DocuSign appears undervalued.

(And if you use Finch.io like I do for valuation screens and analyst estimates, you can get 15% off with my referral link in the description.)

Final Verdict: Is DocuSign Still a Buy?

So here’s where I land.

The soft billings number was definitely disappointing—and it’s not something I’m going to gloss over. But in the context of a broader transition to a new product platform and strong guidance for the next quarter, I believe this dip is a short-term hiccup, not a fundamental breakdown.

DocuSign continues to benefit from powerful secular tailwinds. Its business model is efficient, cash-rich, and increasingly shareholder-friendly. The company holds a dominant position in a market that is still in the process of digitizing globally.

While the overall addressable market is relatively modest compared to other sectors, DocuSign’s dominance within it and its ability to defend that market share give it unique value. And at a valuation of less than 22x forward earnings, I believe that value is not yet priced in.

I am reaffirming my Buy rating on DocuSign stock.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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