What Happened?
Shares of electronic signature company DocuSign (NASDAQ: DOCU) fell 6.6% in the afternoon session after the company released a conservative financial outlook that overshadowed its third-quarter results.
Although the company's third-quarter revenue beat expectations, rising 8.4% year-over-year to $818.4 million, investors focused on the forecast for slowing growth. DocuSign's management guided for fourth-quarter revenue to land between $825 million and $829 million, representing a 6.5% annual growth rate at the midpoint, a slower pace than the previous quarter. This conservative outlook raised questions about the company's future growth potential. In response to the guidance, several financial firms lowered their price targets for the stock. Bank of America, Wells Fargo, and Wedbush all reduced their targets, citing concerns over modest growth and uncertainty about the company's future financial performance.
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What Is The Market Telling Us
DocuSign’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 14 days ago when the stock gained 3% on the news that comments from a key Federal Reserve official bolstered hopes for an interest rate cut.
The positive sentiment followed comments from New York Federal Reserve President John Williams, a voting member of the rate-setting Federal Open Market Committee (FOMC), who indicated he sees room for further policy easing. Following his remarks, the probability of a December rate cut surged from 39% to 71%, according to the CME FedWatch Tool, causing Treasury yields to fall. Lower interest rates can be particularly beneficial for growth-oriented sectors like software, as they increase the present value of future earnings. This renewed hope provided a boost to the sector, which had recently faced pressure from concerns over high valuations in artificial intelligence.
DocuSign is down 26.9% since the beginning of the year, and at $66.04 per share, it is trading 38.3% below its 52-week high of $106.99 from December 2024. Investors who bought $1,000 worth of DocuSign’s shares 5 years ago would now be looking at an investment worth $284.01.
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