DocuSign, Inc. (DOCU) shares took a hit Friday despite the company posting better-than-expected third-quarter results the night before. Sometimes beating expectations isn't enough.
The Numbers Game
DocuSign reported adjusted earnings per share of $1.01, comfortably ahead of the 92-cent consensus estimate. Revenue came in at $813.35 million, topping analyst expectations of $806.91 million. By traditional metrics, this looks like a win.
The company emphasized strong execution and improved efficiency during the quarter, powered by its Intelligent Agreement Management platform, which now counts more than 25,000 customers. Total billings climbed 10% year-over-year, with subscription revenue continuing to drive the bulk of sales.
On the margin front, GAAP gross margin held steady compared to last year, while non-GAAP gross margin dipped slightly. Cash flow told a positive story: net cash from operating activities increased from the prior year, and free cash flow reached $262.9 million. The company closed the quarter with $1.0 billion in cash, cash equivalents, and investments.
DocuSign put $215.1 million toward share repurchases during the quarter, up from the prior-year period. Management highlighted growing adoption of its AI-native platform and fresh integrations across ChatGPT, Anthropic Claude, Gemini Enterprise, and various enterprise software tools.
The company also rolled out expanded trust and security certifications, new identity verification capabilities, additional language and regional availability for Navigator, and earned recognition including placement in the Gartner CLM Magic Quadrant and the 2025 Fortune Future 50 list.
Looking Ahead
For the fourth quarter, DocuSign expects revenue between $825.00 million and $829.00 million, essentially in line with the consensus estimate of $826.84 million.
More notably, the company raised its fiscal 2026 revenue guidance from a range of $3.18 billion to $3.20 billion up to $3.20 billion to $3.21 billion. The consensus estimate sat at $3.19 billion.
Analysts Pump the Brakes
Here's where things get interesting. Despite the earnings beat and raised guidance, multiple analysts responded by cutting their price targets. Baird analyst William Power maintained a Neutral rating but dropped his target from $90 to $75. B of A Securities analyst Brad Sills also kept a Neutral rating while lowering his target from $102 to $82. Wedbush analyst Dan Ives followed suit, maintaining Neutral but reducing his target from $85 to $75.
At last check, DocuSign shares were trading 6.45% lower at $66.52.
