Is Docusign's Strategy to Transform Into IAM Yielding Results?

Docusign DOCU made a pivotal change in its legacy business model, shifting from an e-signature product to an Intelligent Agreement Management (IAM) platform. This platform is made to capture the entire lifecycle of an agreement. An early sign of the success of this AI-fueled platform is translated by key financial metrics.

DOCU recorded $800.6 million in its top line during the second quarter of fiscal 2026, a solid 9% year-over-year increase. Surprisingly, billings gained 13% from the year-ago fiscal quarter. This remarkable growth can be attributed to the increased customer demand for the AI-driven IAM platform, resulting in multi-year deals that build a future revenue pipeline. During the second quarter of the fiscal 2026 earnings call, management disclosed that at least one IAM deal was closed by more than 50% of its enterprise account reps during the quarter, despite the product being in its early days.

Moreover, the dollar net retention climbed to 102% during the second quarter of fiscal 2026 from the preceding quarter’s 101%. Even more impressive is that the metric skyrocketed 99% year over year. This positive movement highlights that customers are inclined toward IAM, validating management’s claim that this product represented a greater share of direct deal volume and total gross booking than the first quarter of fiscal 2026.

It is impressive how the company has managed to maintain financial efficiency while transforming its business model. During the second quarter of fiscal 2026, gross margin and operating margin increased by 40 basis points (bps) and 20 bps, respectively. Even free cash flow rose to $217.6 million, up from $197.9 million in the same quarter last year, highlighting the financial flexibility essential for investments in AI and machine learning, which are crucial for the IAM platform. All in all, the strong top-line cadence and operational efficacy were reflected in the striking early success of IAM during the second quarter of fiscal 2026.

DOCU’s Price Performance, Valuation & Estimates

Docusign has declined 26% in the past six months compared with a 3.7% dip in its industry. The stock has underperformed Appian APPN and StoneCo’s STNE 27.6% and 8.6% growth, respectively, during the same time period.

Six-Month Share Price Performance

From a valuation standpoint, DOCU trades at a 12-month forward price-to-sales ratio of 3.83, cheaper than the industry’s 4.61. However, Docusign appears more expensive than Appian and StoneCo’s 3.77 and 1.49, respectively.

Price/Sales F12M

Docusign has a Value Score of C. Appian and StoneCo carry Value Scores of F and A, respectively.

The Zacks Consensus Estimate for DOCU’s fiscal 2026 EPS is pegged at $3.69, a marginal increase over the past 60 days. For fiscal 2027, the consensus mark is pinned at $4.06, rising marginally over the past 60 days.

Docusign currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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