DocuSign shows risk of investing along dotted line

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It’s always the small print that carries the sting. DocuSign’s shares plunged by 40% on Friday, after it warned that demand for its e-signature software had slowed faster than it expected. The market’s response is dramatic, but for investors buying stock in profitless companies buoyed by aggressive projections, brutal corrections are all part of the unspoken contract.

that demand for its e-signature software had slowed faster than it expected. The market’s response is dramatic, but for investors buying stock in profitless companies buoyed by aggressive projections, brutal corrections are all part of the unspoken contract.

The trouble is that in a frothy market, little changes lead to big changes. DocuSign had rocketed to a $46 billion market capitalization – after tripling in less than a year – because investors were following the dotted line on some dizzying trends. Springer’s firm had 285,000 customers around five years ago, and now it has 1.1 million. It has grown from $349 million of revenue in 2017 to a forecast of $2.1 billion next year.The calculus of revised assumptions is unforgiving.

- The company said that it billed its customers 28% more in the third quarter than it had a year earlier and that revenue of $546 million was 42% higher year-on-year.

 

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