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DocuSign shares plunged 12% on Friday even though the electronic signature company had just reported better-than-expected earnings. The problem had to do with challenges the company is having pulling in additional revenue from customers.
It's become a familiar theme among cloud software companies in recent weeks. Longer sales cycles and difficulty in sales execution were themes that popped up in earnings calls from Box, Zuora, Cloudera and Pivotal Software as well. All of them got punished by Wall Street, some much more than others.
In part, they're dealing with the growing pains that come with being maturing companies and the complexities of dealing with large enterprises while at the same time trying to meet the demands of public market investors.
For DocuSign, the issue stemmed from the $220 million purchase last year of SpringCM, which took the company beyond a single product for digitally signing documents and into an area called contract lifecycle management (CLM), which involves managing the creation of documents for people to sign and then keeping track of changes.
"By becoming a two-product company, in the short run, it's harder to sell," DocuSign CEO Dan Springer told CNBC in an interview on Thursday before the company announced earnings. "You elongate the sales cycle. You put a short-term dampening, I think, on your billings, but you increase your long-term billings, because we have more to sell."
Springer elaborated on the financial implications of DocuSign's expansion during a conference call with analysts, who were asking about the trend. He used a European bank as an example.
"Normally, we would have had a more straightforward e-signature only," said Springer, who was previously CEO of marketing software company Responsys, which Oracle acquired for $1.5 billion in 2014. "They were interested in also looking at some of the CLM capabilities of SpringCM. And as we got to the sort of end of the quarter, we realized our normal sort of pacing and process would take longer. And it's a deal that closed 10 days after the end of the quarter."
Prior to this week's earnings report, DocuSign's stock price was up 89 percent from the company's IPO last year. It's part of a crop of subscription cloud-based software companies that have gone public in recent years and provided growth stories to enterprise technology investors.
The drop on Friday was DocuSign's worst in its short history on the market.
"While relatively minor, this is the first slip we have seen," KeyBanc Capital Markets analysts Rob Owens and Liz Verity wrote in a note. Even though the company beat on earnings and revenue, its billings number of $215 million trailed KeyBanc's estimate of $219 million. The analysts kept their "overweight" rating on the stock.
Relative to some of its business software peers, DocuSign got off easy.
Pivotal shares plummeted 41% on Thursday. The company, which provides tools for running applications in multiple cloud environments, said it had trouble with sales execution, and CEO Rob Mee told analysts that "some of the deals we expected to close in Q1 slipped."
Shares of Cloudera which sells a commercialized version of Hadoop open-source software for big data workloads, fell 43% on Thursday. The company announced the sudden departure of CEO Tom Reilly and pointed to greater competition from cloud providers as it merged with competitor Hortonworks.
Zuora, whose shares dropped almost 30% on May 31, also pointed to execution challenges with sales. The company provides software that helps businesses manage their subscriptions, which is becoming critical as more traditional media, energy and industrial companies transition to on-demand models.
"What we're seeing in Q1 is that the newer reps were less than half as productive than our more experienced reps," CEO Tien Tzuo said on the call with analysts. "We're finding that we need to improve the support of our new reps with training and experienced oversight to help them ramp and close new businesses."
File syncing and sharing company Box had similar commentary in announcing weaker-than-expected guidance this week. The stock dropped 4.2% on the report. Box went public in 2015 and has been looking to wrap up higher-value deals.
"Overall, the sales cycles have lengthened from maybe where we were one or two years ago and that's been the shift in the model that we're seeing," CEO Aaron Levie told analysts.
At DocuSign, Springer is focused on doing a better job of expanding in existing accounts, while also adding new customers. At one point salespeople were tasked with doing both, but now the company has distinct groups for those efforts, said Springer.
He's already clamped down on costs, eliminating unnecessary software internally. Now it's a matter of growing at a rate that can please investors while maintaining that discipline with expenses.
"We want to have high growth and we'd like to have it in reasonable economics," he said.