Docusign (NASDAQ:DOCU) is down 30% postmarket yesterday and premarket today in a sign that the lockdown boom is ending. The implication here is not so much for the company itself, Docusign, but what this means for those others who have ridden the lockdown boom?
Docusign itself works on ways in which companies can forge and sign and approve electronic agreements. The ways in which this here internet can replace paper documents and office visits to sign them and all that. A major part of that is eSignature which allows the electronic signing of contracts and so on without the need for in person or postal intervention.
This business obviously has its merits, as with online shopping and working from home, the technological world is changing. All such techs also received a significant boost from the lockdowns. Changes that might have taken years, even decades, to work through accelerated as a result of us all cowering in our front rooms. Online shopping jumped at least 10% of UK retail sales for example, a process that had been advancing at 1 and 2% a year.
The big question though is how much of this is a change in technological use which is going to stick and how much just a reaction to the special circumstances of the past couple of years?
The idea at Docusign, the assumption of investors about the company’s prospects, was that this was going to stick. Growth had been phenomenal and the recent results reflected that. But the earnings guidance, the revenue projections, released yesterday showed that while growth was continuing – at a rate highly desirable by normal standards – it was below the rate the market more generally had been assuming. Thus the price drop in the stock.
From which we should take two lessons. Firstly something we should already know, markets are forward looking. Docusign is still growing and all that, but not as fast as was being assumed – the stock valuation fell because that valuation is about what will happen in the future, not what has.
The second, and more important point for us immediately, is that there are going to be other such companies reporting similar things. Yes, that lockdown accelerated the adoption of new ways of doing things. But how much of that is going to stick?
Growth rates in these new ways might accelerate as we’re all shocked out of the old and increasingly adopt this new. Rates of increase might drop back to what they were pre-pandemic. It’s even possible that revenues and market share of these new will fall as we all realise that we don’t like them as much as those old ways.
This has huge implications for both the winners and losers of lockdown behavioural change. What’s going to happen to airlines? Will we all climb aboard again? Tourism companies? What about retail landlords, is shopping something we’ll continue to do online or is it more of a social experience that we like going out to do? No, don’t judge that just by the ambitions of teenage girls to go to the mall. Will the prices of the online fast fashion outlets continue to captivate or not?
The real lesson of Docusign isn’t about the electronic signature of documentation. It’s that some of the acceleration of new tech will slow down, possibly even reverse, post-lockdown. There will be significant trading opportunities in identifying who is going to win and lose from this.
