Sometimes investors underestimate the ability of a company to grow with its core product. DocuSign (DOCU 1.42%) may be in that category. With the tailwinds of remote work, its flagship e-signature software has propelled incredible growth, dwarfing the revenue from its end-to-end Agreement Cloud suite of tools. On a Fool Live episode recorded on June 16, Fool contributors Brian Stoffel and Brian Withers discuss the strength of its core capability and whether an investing thesis should count on growth beyond e-signatures.
Brian Withers: Let me jump into DocuSign, D-O-C-U. DocuSign is starting to lap the coronavirus gains. It really reminds us that the growth story for DocuSign is all about large corporate customers. Let me show you that. I got a couple of slides here.
It's important to understand how DocuSign prices its corporate offerings for customers. It's really on a couple of different factors. There's a functionality factor over here whether it's single-user, multi-user, business pro, enterprise, and whatnot. There's a tiered platform based on capabilities, but there's also a capacity component and a volume component. An envelope is basically, think of a document that's getting routed with a bunch of signatures on it, that's an envelope. The more envelopes and the higher the functionality, the more annual cost the contract is going to be.
Now, what's interesting is when customers move over to DocuSign the first time, they probably have no idea how many envelopes they need, how many documents actually get routed. There's no central document repository for where all these things land in most companies. It's likely that enterprises actually underestimate the number of envelopes needed. What's interesting is there's a lot of customers that have been added over the last 15 months. Look, this was the end of fiscal year 2020. They've added 50 percent year-over-year, and then they're adding even more corporate customers here. This corporate customer piece is very important because that makes up 88 percent of the revenue for DocuSign, and I mentioned that customers growing over time. Well, look at this net dollar retention. This is absolutely an amazing chart. Not only are customers paying more every year, they're paying more on an accelerating [laughs] basis. The strength in their offering to corporate customers and eSignatures is super-powering its growth right now and looks to be [a] tremendous growth driver for years to come.
Brian Stoffel: Brian, I'm a shareholder, and I thought that was a great presentation. I did not know about the envelopes, and I knew about the accelerating retention rate, which you don't often see, especially with a company of this size because DocuSign is pretty well-established company. If this was a brand-new company, sure. Or if they just come out with a brand-new product, sure.
But talking about that brand-new product. When I invested in it the first time, the Agreement Cloud was a huge part of this, and the Agreement Cloud includes eSignatures, but it's so much more than just eSignatures. It's about the entire cycle of a contract, about negotiating and reaching milestones, and payouts and things like that. I haven't really been hearing very much about it from the company, but also that hasn't seemed to be a big deal. As you clearly show, they're doing all right without it at this point.
That was central to my investment thesis, but it seems like it's almost like a cherry on top and the eSignature itself is so strong. Is that how you view it?
Brian Withers: Yeah. You pointed out a great dichotomy. We love to write about expanding addressable markets and having more products, [to] enable and capture more money from customers by having more products is really a great growth story and an absolutely fantastic investing thesis. But it's been amazing how powerful this eSignature business is.
But if I look 5-10 years down the road, the Agreement Cloud is going to be absolutely critical. Today, DocuSign is about a $50 billion company, and if it's going to get to where it's an Adobe-size company at maybe five times the market cap, Adobe has two really powerful growth engines: a document management engine with its PDF documents and its Creative Cloud. Those two together have propelled Adobe into this superpower SaaS company.
I really am excited. If you want to jump on board DocuSign right now for the eSignature, you can just kick your heels back, I think, for the next 5-10 years as the Agreement Cloud, they start to win with longer sales cycle and integration efforts. But that Agreement Cloud is super-duper sticky. Once that goes in, it isn't coming out, and that provides an even further opportunity to grow revenue within each customer. Absolutely great question. Thanks, Brian.
