International IAM Launch Will Open New Markets But Encounters AI And Economic Uncertainties

Key Takeaways

• Intelligent Agreement Management and enhanced partner channels could drive significant revenue growth in SMB, mid-market, and international segments.
  
• Focus on efficiency and federal market expansion may improve operating margins and generate additional revenue streams.
  
• Reliance on evolving AI technologies faces risks, while competitive pressures and economic uncertainties could impact future growth and profitability.

Catalysts

Provides electronic signature solution in the United States and internationally.

• Docusign's introduction of Intelligent Agreement Management (IAM) and its subsequent strong adoption and momentum, particularly in the SMB and mid-market segments, could drive significant revenue growth as it contributes to expanding the company's subscription recurring revenue base.
  
• The launch of IAM internationally, along with deeper focus on upsell opportunities and improving partner channels, is expected to contribute significantly to long-term international revenue growth and improved net margins.
  
• Investments in self-service capabilities and product-led growth initiatives are intended to reduce friction and improve customer experience, which should enhance revenue as more customers can efficiently upgrade and manage their products digitally.
  
• Docusign's focus on operating efficiency, along with maintaining high non-GAAP operating margins while shifting to higher-value sales motions and IAM platform development, suggests potential improvements in net margins and operating leverage.
  
• Expansion into federal government opportunities represents an untapped market; successful penetration could provide additional revenue streams and contribute positively to earnings.

DocuSign Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DocuSign's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 35.9% today to 8.8% in 3 years time.
• Analysts expect earnings to reach $327.9 million (and earnings per share of $1.87) by about March 2028, down from $1.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $386 million in earnings, and the most bearish expecting $271.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 71.2x on those 2028 earnings, up from 16.1x today. This future PE is greater than the current PE for the US Software industry at 28.2x.
• Analysts expect the number of shares outstanding to decline by 0.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.4%, as per the Simply Wall St company report.

DocuSign Future Earnings Per Share Growth

Risks

• The company's reliance on rapidly evolving AI technologies in products like Intelligent Agreement Management (IAM) could face development challenges or market adoption risks, affecting future growth in revenue and earnings.
  
• Foreign exchange fluctuations pose a noted headwind to both revenue and billings for fiscal 2026, which could impact overall financial performance and profitability.
  
• Competitive pressures, particularly from larger enterprises and established software vendors, could affect DocuSign's ability to capture market share and drive revenues from new and existing customers.
  
• Operational impacts, such as the ongoing cloud infrastructure migration, are expected to impact gross margins and profitability over the next fiscal year before settling.
  
• Economic uncertainty and potential changes in macroeconomic conditions, including the impact of tariffs or trade wars, may affect customer sentiment, stalling sales cycles or impacting growth in core eSignature and IAM products, potentially impacting revenue and earnings.

Valuation

• The analysts have a consensus price target of $95.642 for DocuSign based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $124.0, and the most bearish reporting a price target of just $70.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $327.9 million, and it would be trading on a PE ratio of 71.2x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $85.01, the analyst price target of $95.64 is 11.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.