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Wolfe Research upgraded shares of DocuSign (NASDAQ:DOCU) to Peer Perform from Underperform on Thursday, stating that they believe investors are underappreciating the true margin potential of the business and view consensus estimates as relatively de-risked.
“After DOCU reported F1Q23 results, we downgraded shares to Underperform, given the real fear that growth was drastically decelerating while operating and FCF margins were deleveraging,” explained Wolfe Research analysts. “This story has played out in our opinion, and while we are by no means calling for growth to re-accelerate or even return to double digits, we do see breadcrumbs that give incremental confidence in operating leverage and meaningful FCF upside.”
They added that the firm believes DocuSign has made some important announcements to pivot from a high-touch, very expensive enterprise GTM motion to a low-touch PLG opportunity.
“We see the DOCU value prop as being very suitable for PLG and see recent hires, RIFs and future product strategies aligning to this strategy,” the analysts wrote.
“While upcoming earnings and ‘FY24 margin guidance is a wildcard, we see the opportunity for activism if the company fails to execute on this pivot to profitability and PLG.”
