Can DocuSign restructure revive the company's slowing growth? DocuSign's stock faced a setback amid stalled acquisition talks, leading to a 2.84% decline. Revenue growth slowdowns also pose challenges, as demand is easing.

If you’ve conducted any significant transactions lately, including buying a house but not limited to that, you may have come across DocuSign Inc. (NASDAQ: DOCU). 

DocuSign stock gapped down 2.84% in heavy volume on February 6 on news that acquisition talks had stalled. DocuSign issued a news release saying it would be restructuring “to support multi-year growth” as an independent public company.

The DocuSign chart gives you an easy glimpse of the stock’s trajectory since going public in 2018. It rallied to a high in August 2021, but fewer investors have been signing up to buy shares since then.

The stock is down 18.55% in the past year, and down 40.32% in the past three years. That’s enough to get activist investors involved to drive change or to attract outside investors who see hope for turning a company around.

In fact, that’s what’s been happening to DocuSign. In January, two private equity firms, Hellman & Friedman and Bain Capital, were both competing to acquire the electronic signature specialist.

Offer for $8 billion in acquisition financing

JPMorgan Chase & Co. (NYSE: JPM) and Bank of America (NYSE: BAC) said they would provide as much as $8 billion in financing for a DocuSign buyout.

Those plans reportedly fell through, as the private equity firms couldn’t reach an agreement with DocuSign about the company’s valuation. The current market capitalization is $10.55 billion.

DocuSign was among pandemic-era high fliers, joining stocks including Clorox Co. (NYSE: CLX), Peloton Interactive Inc. (NASDAQ: PTON), Pfizer Inc. (NYSE: PFE), Moderna Inc. (NASDAQ: MRNA), Zoom Video Communications Inc. (NASDAQ: ZM) and Etsy Inc. (NASDAQ: ETSY).

For various reasons, all those companies had products or services in high demand during a truly strange time in history. However, as the Covid pandemic fades further away in the rearview mirror, all those stocks are trading below their 2020 or 2021 highs. 

In some cases, well below, as we’re seeing with DocuSign. 

Revenue growth slowing in past two years

If you glance at DocuSign earnings, it may not immediately seem that the company should be in trouble. 

But if you dig a little deeper, the problems become apparent: Revenue has been growing, albeit at gradually slower rates. In the past seven quarters, revenue growth slowed from 35% to 7%. 

DocuSign’s recent rallies have been based largely on rumors of a sale, rather than optimism about renewed growth. 

In December, DocuSign stock rallied 38% as news broke that the company may be exploring a sale. It added another 2.47% to that rally in January, but as it became clear a sale would not be imminent, the stock broke down, falling 16% in the past week. 

The issue is not that DocuSign’s product isn’t useful; in fact, its use has become more ubiquitous over time, as the revenue growth indicates.

Fewer growth catalysts

However, that slowing revenue growth also tells a story: Demand has cooled, due to more in-person transactions, and because many of the big users are already onboard. In addition, rising inflation and recession worries took a bite out of growth. 

DocuSign has partnered with other companies, such as Microsoft Corp. (NASDAQ: MSFT), Meta Platforms Inc. (NASDAQ: META), Salesforce Inc. (NYSE: CRM), Alphabet Inc. (NASDAQ: GOOGL) and Oracle Corp. (NYSE: ORCL) to expand its user base. 

However, those partnerships are instructive and may offer a clue as to DocuSign’s future. All those companies have grown by acquiring other technologies and adding them to their stack. That kind of acquisition is common among technology stocks. 

In contrast, DocuSign has one area of specialization, which may limit its growth potential. 

In January, Morningstar analysts wrote, “A sale underscores our belief that e-signature is a feature best contained in a broader platform. DocuSign’s contract lifecycle management could be that platform, but the solution remains a small part of overall revenue, and investors may not have the patience to wait for a broader platform to reinvigorate growth, so there is rationale for selling the company. It is not clear if there are other bidders.”