Story Stocks^®

DocuSign (DOCU -19%) is under heavy pressure following its Q1 (Apr) report last night. The e-signature/document creation giant reported a solid EPS beat. Revenue rose 7.6% yr/yr to $763.7 mln, which was much better than analyst expectations. DOCU also guided Q2 (Jul) revs above expectations and raised FY26 revs guidance. That was a lot better than its last report when it guided lower. DOCU also increased its share buyback authorization by $1 bln, but that's not having much impact.

• Revenue growth outpaced internal expectations, which DOCU attributed to additional IAM customers and self-serve digital revenue contribution. The DocuSign IAM platform is a significant departure from its past approach of only offering standalone products. This platform combines current products (eSignature, CLM) with new platform services. IAM sales continued to show strong momentum, with both IAM deal volume and revenue slightly outpacing internal expectations this quarter.
• So what went wrong? It seems the billings metric is the main culprit. In terms of key operating metrics, billings is a closely watched number. Billings in Q1 rose just 4% yr/yr to $739.6 mln, which was below the $741-751 bln prior guidance. It was also a dropoff from +11% growth in Q4 and +9% in Q3. And it's not just Q2, DOCU also lowered full year billings guidance slightly to $3.285-3.339 bln from $3.300-3.354 bln.
• DOCU explained that billings ended slightly below its guidance range due to lower than expected early renewals. Billings would have finished near the high end of guidance when excluding both the negative impact from early renewals and the positive billings FX impact. Billings renewal timing was impacted by changes, including rolling out new customer-size segments, territories, and performance-based compensation.
• Its prior full year guidance anticipated that these changes would lead to lower early renewal billings in FY26 after Q1. Instead, the impact happened sooner than anticipated, resulting in lower Q1 early renewals. As a result, billings growth ended slightly below prior guidance. DOCU stressed this was a timing issue, not a demand issue.

We have followed DOCU for a long time and it rarely misses on billings. In fact, DOCU tends to be conservative with billings guidance, so this was a surprise. The good news is that DOCU stressed it was more of a timing issue than a demand issue. However, DOCU did build in some additional conservatism into its FY26 billings guidance, given the uncertain economic environment. We think the combination of the rare billings miss and FY26 guidance is spooking investors a bit.