Rowan Street Capital LLC, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be seen here. In its letter, the fund said that the recent quarter was particularly tough in terms of market performance for most digital economy stocks and for its focused strategy, where its portfolio declined -12.3%. This resulted in a -19.4% (gross) decline for the full year 2021. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Rowan Street Capital, in its Q4 2021 investor letter, mentioned DocuSign, Inc. (NASDAQ: DOCU) and discussed its stance on the firm. DocuSign, Inc. is a San Francisco, California-based electronic signature technology company with a $22.9 billion market capitalization. DOCU delivered a -23.75% return since the beginning of the year, while its 12-month returns are down by -52.48%. The stock closed at $116.13 per share on January 21, 2022.
Here is what Rowan Street Capital has to say about DocuSign, Inc. in its Q4 2021 investor letter:
“DocuSign (DOCU)
Finished 2018 with $701 million in revenues; in 2021 they are expected to make $2.1 billion (that’s 3x in just 3 years)
477,000 paying customers at the end of 2018 grew to 1.1 million
Customers spending more than $300k per year increased from 310 to 785 (2.5x growth).
Docusign stock tumbled 42% after it reported in Q3 earnings in the beginning of December, in which it delivered a disappointing Billings outlook as CEO Dan Springer called out a “return to more normalized buying patterns following a stretch of “accelerated growth.” The company was viewed as a hot pandemic play, but recently the market sentiment has shifted to “the slowdown is as a sign a company might have grown too quickly as investors crowded into trades that worked.“
As you can see from the graph below, Docusign stock was trading at ‘peak optimism’ price-to-sales ratio of 35x in the summer of 2020 and has now corrected to a much more reasonable 13x (or 10x expected 2022 sales). Thankfully, our position was insignificant before this correction, and we have been taking advantage of this significant decline in the stock price to build a much larger position, as we expect it to deliver double-digit returns from these price levels over the next 3-5+ years.
Our rationale is simple: despite the recent decline in the valuation, it’s clear that Docusign is still in the early days of its $50 billion Agreement Cloud opportunity as digital transformation remains a high priority for organizations worldwide (our fund is a very happy user of their services). DocuSign is uniquely positioned to lead and capture eSignature and the broader Agreement Cloud market opportunity, given their strong brand leading market position (Docusign has now become a verb) and product differentiation. Even as the pandemic subsides and people begin to return to the office, they are not returning to paper. eSignature and the broader Agreement Cloud are clearly here to stay, and DocuSign’s value proposition will persist no matter how the future of work unfolds.
The huge drop in company stock also triggered the company CEO, Dan Springer to purchase approximately $10 million worth of DOCU stock in the open market. This is the first insider purchase at the company since it went public in April 2018 at $29, and its the vote of confidence that we love to see!”
WAYHOME studio/Shutterstock.com
Our calculations show that DocuSign, Inc. (NASDAQ: DOCU) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. DOCU was in 51 hedge fund portfolios at the end of the third quarter of 2021, compared to 58 funds in the previous quarter. DocuSign, Inc. (NASDAQ: DOCU) delivered a -58.21% return in the past 3 months.
In December 2021, we also shared another hedge fund’s views on DOCU in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
