High Growth Potential Makes DocuSign IPO Attractive

  • E-signature market leader DocuSign is a prominent IPO candidate in 2016.
  • High demand for DocuSign stock in the private secondary market could indicate the demand for shares in IPO.
  • With a P/S ratio of 7, 90% growth in valuation YoY, and impressive growth potential, DocuSign IPO seems attractive.

Electronic signature software developer, DocuSign is expected to go public in 2016, seeking public funding after raising more than $500M in private placings, private secondary transactions, and debt raising. The Seattle-based company was founded in 2003 by Tom Gonser to offer authentication services in a secure and encrypted environment for documents and transactions for individuals, SMBs, and corporates. DocuSign allows its clients to fill, sign, and email documents in a safe, secure, and encrypted manner from any iOS, Android, and Windows device.

DocuSign has an extensive list of products and services that fit the requirements of many professional sectors. To maximize its reach, the company provides unique offerings for particular industries and corporate departments. These specially optimized plans provide industries and departments only the services they need for a price that fits that software package. The industry-specific solutions allow DocuSign to increase its target audience and proactively approach potential clients with cost and time-efficient software solutions.

To expand its ecosystem, DocuSign signed a wide range of partnership agreements with enterprise software providers, productivity apps developers, CRM vendors, and ERP vendors. DocuSign's impressive partner list includes Microsoft (NASDAQ:MSFT), Alphabet Inc-C (NASDAQ:GOOG), Salesforce (NYSE:CRM), Netsuite (NYSE:N), Oracle (NYSE:ORCL), SAP (NYSE:SAP) and more.

DocuSign's technology and sales strategy generated more than 100,000 corporate clients out of a total of 50 million clients in 188 countries worldwide. In the last couple of years, DocuSign grew from 40,000 (in 2014) to 50,000 (in 2015) new unique users joining the services every day, which drove the company to consider a public offering as the next stage for the e-signature market leader. As the first step towards an IPO, DocuSign will replace its top executives and is looking to backfill CEO Keith Krach and the founder and chief strategy officer Tom Gonser. Krach and Gonser brought the company so far, but DocuSign is looking for experienced executives to lead the company to the next phase through the IPO and as a public company.

While the financial growth is still confidential and privately held, we can learn a lot about the company from the many private placings it had since inception. As shown in the chart below, DocuSign reached a valuation of $3B in its latest funding round from May 2015 which is 90% hike from the $1.6B valuation the company received a few months earlier. Between May 2014 and April 2015, DocuSign and its employees sold company stock on four different occasions on the secondary market, which shows the demand for DocuSign stock that could support a bullish IPO scenario and shed some light on the company’s reasoning behind the idea to go public.

DocuSign_chart 1_021819

Market size estimations suggest that DocuSign controls 75% of the e-signature market and outperforms Adobe Systems (NASDAQ:ADBE) eSign solution and many small pure play companies that operate in this niche. As our lives become more digital, with an increased use of connected devices and growing demand for completely digital work processes, the demand for e-signature services is expected to grow. Research firm Forrester estimates that the e-signature market is expected to grow from 210 million transactions in 2014 to 700 million transactions in 2017. However, the e-signature market generates only $500M a year, and a large number of players push large vendors to acquire smaller competitors to increase revenues and profitability.

Assuming DocuSign controls 75% of a $550M market, it reflects a P/S ratio of 7 which could fit an IPO. Taking into account the expected increase in demand for e-signature services and proven demand for DocuSign shares in the secondary market, alongside Forrester’s estimation for revenues CAGR of 50%, DocuSign seems like an attractive IPO.

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