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15 March 2021

Signing on the Virtual Dotted Line

Last week, the digital signature company DocuSign reported its earnings for the fourth quarter of 2020. The business model of DocuSign is fundamentally centred around allowing users to sign a contract with a virtual signature rather than having to receive a paper copy, which typically is returned by post or in person. The company also assists businesses with overall contract management.

After adjusting the company’s earnings, they came out at 37 cents per share, with analysts expecting 22 cents per share, and that displays a 48% increase from the same quarter a year ago. Like many well-known companies, DocuSign was not sparking much attention from investors pre-pandemic but that soon changed when Coronavirus plagued the globe and business practices had to adjust immediately. DocuSign has experienced a 200% increase in its share price over the past year, this is primarily due to companies needing their clients to sign contracts to be compliant with regulations. Because of this, a large portion of the customer base for DocuSign are the more regulated industries such as financial services and law firms. These business models are highly exposed to legal liability where contract procedure must be followed, and therefore signatures are essential even in a time where people cannot meet face to face to sign a contract.

Overall, economies are pushing towards the stage of reducing isolation and lockdown restrictions as vaccines are in mass rollout phases in most developed nations. There is the concern that this could lead to a dent in future performance of DocuSign, as people will return to being able to sign a contract in person. Alternatively, with the firm’s virtual signature and contact management capabilities, the company displays similar characteristics to a monopoly within this market which has an addressable value estimated at US$50bn. This simply eludes to the fact that many potential customers of DocuSign are yet to realise the efficiencies that could be gained from a regulatory perspective.

Taking financial services for example, numerous contracts have to be signed by the client in order to allow a company to manage its assets to avoid legal disputes and to confirm that the client is willing and aware of all the possible implications of such an agreement. Taking a pen and paper approach, a client either has to make multiple visits to the office before a legal agreement is fully confirmed for the firm to begin conducting business, either that or contracts are sent back and forth to homes and offices. The virtual signature allows these initial stages of business arrangements to be organised and legalised with far greater efficiency, which is a trend that is likely to stay even as lockdowns are lifted.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Signing on the Virtual Dotted Line
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