Investor demands for profitability flatten tech companies – Vidak For Congress

Investor demands for profitability flatten tech companies - Vidak For Congress 1

Shares of DocuSign are down 25% in pre-market trading today after it reported gains last night, pushing the value of shares in the company before e-signatures below pre-COVID levels.

Since the market is valuing DocuSign at a lower price than early 2020, you might think it’s struggling. Barely. After a massive period of pandemic-fueled growth, DocuSign posted 25% revenue growth in its most recent quarter, reaching $588.7 million in revenue, about $7 million ahead of street expectations. In fact, the company’s growth target for the current fiscal year lies with investor expectations.


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Confused by the fact that DocuSign is undergoing such a sharp price overhaul after reporting better-than-expected lagging growth and in-line guidance? Do not be. DocuSign has committed the new cardinal sin of technology companies: losing more money as growth slows.

Investor demands for profitability flatten tech companies - Vidak For Congress 2As the market mania fades from the 2021 highs, investor expectations are: change quicklyand it’s taking down a large number of tech companies.

The shock of the end of the era of growth at all costs is not just a shift from a preference for revenue growth to profitability. No, many tech companies are currently navigating a slowdown to their more natural pace of growth as earnings demands increase. It’s hard to slow a growth slowdown and make more money at the same time, but that’s what investors want. And there are plenty of signs that things are not going well.

Spin to profit

DocuSign’s quarter included free cash flow of $174.6 million, up from $123.0 million in the same period a year ago. But at the same time, GAAP net income got worse at the former unicorn:

GAAP net loss per common and diluted share was $0.14 on 200 million shares outstanding, compared to $0.04 on 194 million shares outstanding in the prior year period.

That’s a no-no.

Tech companies race to avoid the same fate. The pivot to profitability – really the pivot to lose less money – is in effect all over the world. A few recent news items make our case clear:

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