DocuSign stock price analysis: buy the dip or sell the rip?

The DocuSign (NASDAQ: DOCU) stock price crashed by more than 42% on Friday as investors reflected on the relatively weak forward guidance. The stock ended the week at about $135, which was the lowest level since June 2020. 

DOCU quarterly results

DocuSign is a cloud computing company that operates in the fast-growing e-signature industry. This business did relatively well in 2020 as more companies embraced the cloud. For example, many property buyers used its software to close deals.

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This year, however, things have changed and the DocuSign stock price has lost more than half its value. Analysts are worried about the company’s growth as the world’s economy reopens. Besides, colleagues in the same company won’t need to use e-signatures. 

On Thursday, the company released relatively strong quarterly results. The firm’s revenue jumped by 42% year-on-year to $545 million. Its operating margin rose to 22% while the number of customers using its service rose to more than 1.1 million. This was about 59,000 more customers than it had in the second quarter. Most importantly, the company was more profitable, as its non-GAAP net income soared to more than $121 million.

The DocuSign stock price crashed because of the weak forward guidance. The firm expects that its revenue will rise to between $557 million and $563 million. For the year, it expects its revenue will rise to more than $2 billion. This guidance was lower than what it guided before.

The toughest thing for DocuSign is that its industry has gotten more competitive in the past few years. The biggest competitor is Adobe, which has an edge because of the popularity of its documents business. Other cloud computing companies like DropBox and Box have also launched their signature solutions. As such, the firm will likely see an erosion of market share.

DocuSign stock price analysis

The daily chart shows that the DocuSign share price crashed hard on Friday. Still, a closer look shows that there were warning signs before this crash. Besides, the company had formed a descending channel pattern. It also formed a small head and shoulders pattern, which is usually a bearish sign. At the same time, the stock made a bearish crossover.

Therefore, I believe that this is not the time to buy the dip owing to the company’s weak results. In addition, this price action has a close resemblance to that of Snap, which has continued to decline after its weak results.

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