Why Docusign Stock Stumbled Last Month

Key Points

• Its first-quarter earnings featured dynamics in one metric that worried both investors and analysts.

• This was despite a double beat on analyst estimates and encouraging growth in other metrics.

An uninspiring quarterly earnings report and a clutch of analyst price target cuts put Docusign (NASDAQ: DOCU) stock in the market's doghouse in June. The first month of summer surely wasn't the warmest for the company, as its shares lost over 12% of their value during the period.

Blame billings

Before the first trading week of the month was over, Docusign had unveiled its first quarter of fiscal 2026 figures. At first glance, they looked good -- revenue cranked 8% higher year over year (to almost $764 million), which was an encouraging result given the company's well-established position in its niche. That was on the back of a 4% climb in billings to just under $740 million.

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Similarly, its bottom line rose at a pleasing rate. The company's non-GAAP (adjusted) net income improved by just over 10% to hit nearly $191 million, or $0.90 per share. Both key fundamentals easily topped the consensus analyst estimates, which called for slightly more than $749 million in revenue and per-share adjusted net income of $0.81.

Meanwhile, on the stock price-supporting front, Docusign announced a $1 billion increase in its common share repurchase program, which has neither a minimum purchase commitment nor a fixed end date. As of June 5, the company added that it had $1.4 billion in potential buybacks remaining from existing authorizations.

The catch with Docusign's first quarter wasn't disappointing revenue, earnings, or the bulked-up stock repurchase initiative; it was the company's billings. First, many analysts tracking the stock were expecting a higher figure than the sub-$740 million the company posted. More than one also pointed out that the actual result landed below the midpoint of management's guidance.

Compounding that, Docusign cut its full-year guidance for the crucial billings figure. And while this wasn't drastic -- it's now modeling $3.28 billion to $3.34 billion, against the preceding $3.3 billion to $3.35 billion -- no investor loves it when a forecast gets the chop.

At least some of the recent dynamic with billings can be attributed to product evolution. Docusign rolled out its next-generation Intelligent Agreement Management (IAM) platform in April 2024, and it seems some clients have been slow to adopt it, hence the disappointing billings performance.

Not an ideal time to be discouraged

I feel that IAM is still relatively new. That, plus the fact that it represents a comparatively premium product from Docusign, is probably responsible for the recent drag. Yet, to me, it represents an advancement for the company, as it's offering notably more sophisticated and useful functionality for its customers.

Yes, the billings performance is a concern, so if I were an investor, I'd surely watch that metric going forward. For the most part, though, I think Docusign runs a solid business, and I'd be bullish on its future.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Docusign. The Motley Fool has a disclosure policy.