Insider Weekends: Daniel Springer Buys More DocuSign

For years we saw the notable insider sales group dominated by tech companies each week but the tables have turned recently. After the recent pullback in growth stocks and specifically software-as-a-service (SaaS) companies, many of these companies are down 60% or more from their peaks and insiders have started buying. The top 3 stocks on the notable insider purchases list this week are SaaS companies. Like value investors, insiders are often early in buying their company’s stock and it is not unusual to see a stock decline further after the initial excitement around the insider purchase dies down. This is especially true for companies that have experienced a recent sharp decline in their stock price. One could argue that this provides long-term investors enough time to build a position.

An initial purchase grabs my interest and I often like to see if there are follow up purchases and if other insiders are also buying. The hardest part is determining if the insider has unique insights about the future or if there are other factors driving their purchase. Beyond attempting to signal the market, insiders are so close to their companies and so in tune with the stock price that sometimes the purchases are driven by anchoring bias and they fail to see the broader changes that might be occurring in their sector or the economy.

In my special situations mid-month update published yesterday, I discussed “broken growth” stocks like the ones on the notable insider buys list and a strategy related to SPACs. I think it might be too early to start buying growth stocks but some of them are starting to look attractive and I plan to start nibbling on the long side in the coming weeks if the downward momentum continues.

We wrote the following about an insider purchase by the CEO of DocuSign (DOCU) last month,

The huge 42% single day drop in DocuSign (DOCU) we discussed last week triggered an insider purchase at the company with the CEO purchasing 34,751 shares worth $4.99 million on the open market. This is the first insider purchase at the company since it went public in April 2018 at $29 per share. The tides have certainly changed as we are now seeing insiders of high-growth companies starting to buy shares after years of mostly selling them.

Just like Asana (ASAN), DocuSign (DOCU) was hit by a deceleration in its growth rate and soft Q4 2022 guidance (fiscal year ends in January 2022). The company reported a 42% year-over-year increase in revenue to $545 million in Q3 2022 and at the midpoint of its guidance of $560 million for Q4 2022, expects to grow revenue 30% year-over-year.  The biggest concern beyond the soft Q4 forecast was a decline in billings and the pandemic related tailwinds subsiding.

DocuSign Billings (source: Company Q3 2022 Investor Presentation)

Unlike Asana, DocuSign generates a significant amount of free cash flow even though net income is consistently negative. For the trailing twelve months ending October 2021, the company generated $419 million in free cash flow. The company was also free cash flow positive pre-pandemic generating $44 million of free cash flow in the twelve months ending January 2020. You probably guessed it that the reason the company is reporting negative net income is on account of very high stock-based compensation. In addition to stock buyback announcements, we also track shares outstanding data from 10-Q and 10-K filings and when I pulled up the shares outstanding data for DocuSign, I was not surprised to see that the company diluted shareholders to the tune of 45% from January 2019 to October 2021 as it focused on growth and issued shares to employees.

DocuSign Changes In Shares Outstanding (source: Inside Arbitrage Database)

DocuSign was trading at a EV/Sales of 23 before the stock took a big hit and now trades for a little below 15 times sales, about the same valuation the market afforded the company pre-pandemic. The market is concerned about slowing revenue growth because the world will gradually return to normalcy after the pandemic. The digitization of documents and e-signatures are secular trends and I don’t see why companies would want to go back to wet signatures even if their workforces return to the office.

The bigger concerns should probably be competition from large companies like Adobe and smaller ones like HelloSign and PandaDoc. DocuSign was founded in 2003 and Adobe acquired EchoSign in 2011 to create its Adobe Sign product, which it launched broadly in 2016. Given how ubiquitous Adobe Acrobat is, I would not be surprised if DocuSign loses market share to Adobe. The good news is that the overall pie for e-signature solutions is growing rapidly and DocuSign has barely made a dent in international sales. In fiscal Q3 2022, the company saw its international sales grow 68% year-over-over and the international segment now represents 23% of overall revenue despite a presence in just a handful of countries. DocuSign is interesting enough that I am going to build a model taking its share dilution into account to see if the company makes sense at current levels.

It is interesting to see Mr. Springer buy shares again about a month after his first purchase. We haven’t seen any other insiders step in to buy shares but we have seen insiders including a Director and the COO sell shares. After writing about the company last month, I did end up building a model. I had to use very optimistic assumptions including a revenue CAGR of 30% over the next 5 years, 75% gross margins and a big decline in operating expenses from 81% of revenue (TTM) to 55% by January 2027 to get a Jan 2027 forward P/E of 28. In order words, pretty much everything has to go right for the company over the next 5 years for the current valuation to work.

The other interesting SaaS insider purchase last week was the purchase of Seattle based productivity software company SmartSheet by its Director James White. Mr. White has been at Silicon Valley’s premier VC firm Sutter Hill Ventures for 21 years and has served on the board of SmartSheet (SMAR) since April 2014.

Welcome to edition 602 of Insider Weekends. Insider buying decreased last week with insiders purchasing $109.84 million of stock purchased compared to $260.56 million in the week prior. Selling also decreased to $782.67 billion compared to $1.14 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 7.13. In other words, insiders sold more than 7 times as much stock as they purchased. The Sell/Buy ratio this week was unfavorable compared to the prior week when the ratio stood at 4.39.

Notable Insider Buys:

1. Asana, Inc. (ASAN): $60.18

President, CEO, & Chair Dustin A. Moskovitz acquired 750,000 shares of this work management platform, paying $60.65 per share for a total amount of $45.49 million. Mr. Moskovitz increased his stake by 6.61% to 12,089,676 shares with this purchase.

You can view the list of recent insider transactions for Asana, Inc. here.

2. Smartsheet Inc. (SMAR): $62.7

Director James N. White acquired 150,000 shares of this productivity software application company, paying $63.07 per share for a total amount of $9.46 million. These shares were purchased indirectly by a trust.

You can view the list of recent insider transactions for Smartsheet Inc. here.

3. DocuSign, Inc. (DOCU): $130.44

President and CEO Daniel D. Springer acquired 18,700 shares of this e-signature solution provider, paying $128.89 per share for a total amount of $2.41 million. These shares were purchased indirectly by a trust.

You can view the list of recent insider transactions for DocuSign, Inc. here.

4. Allogene Therapeutics, Inc. (ALLO): $13.28

Shares of this biotech company were acquired by 2 insiders:

• Director Arie Belldegrun acquired 155,039 shares, paying $12.60 per share for a total amount of $1.95 million. These shares were purchased indirectly by Bellco Legacy LLC.
• Director Joshua A. Kazam acquired 15,000 shares, paying $12.60 per share for a total amount of $189,000. Mr. Kazam increased his stake by 6.15% to 258,885 shares with this purchase.

You can view the list of recent insider transactions for Allogene Therapeutics, Inc. here.

5. Academy Sports and Outdoors, Inc. (ASO): $38.41

Shares of this sporting goods and outdoor recreational products retailer were acquired by 2 insiders:

• Chairman, President and CEO Ken C. Hicks acquired 20,000 shares, paying $38.91 per share for a total amount of $778,200. Mr. Hicks increased his stake by 4.75% to 440,820 shares with this purchase.
• Director Brian T. Marley acquired 10,000 shares, paying $39.46 per share for a total amount of $394,600. Mr. Marley increased his stake by 27.93% to 45,801 shares with this purchase.

You can view the list of recent insider transactions for Academy Sports and Outdoors, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Alphabet Inc. (GOOG): $2795.73

Shares of Alphabet were sold by 2 insiders:

• Director Sergey Brin sold 83,232 shares for $2777.04, generating $231.14 million from the sale.
• Director John L. Hennessy sold 199 shares for $2740.62, generating $545,384 from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Alphabet Inc. here.

2. Ares Management Corporation (ARES): $77.12

Co-Founder, CEO and President Michael J. Arougheti sold 195,184 shares of this asset management company for $78.16, generating $15.26 million from the sale.

You can view the list of recent insider transactions for Ares Management Corporation here.

3. Morningstar, Inc. (MORN): $296.19

Executive Chairman Joseph D. Mansueto sold 47,816 shares of this independent investment research services provider for $307.50, generating $14.7 million from the sale.

You can view the list of recent insider transactions for Morningstar, Inc. here.

4. AMC Entertainment Holdings, Inc. (AMC): $20.57

Shares of this entertainment company were sold by 7 insiders:

• Chairman, President & CEO Adam M. Aron sold 312,500 shares for $22.85, generating $7.14 million from the sale.
• EVP, US Operations John D. McDonald sold 75,000 shares for $22.95, generating $1.72 million from the sale.
• EVP & CFO Sean D. Goodman sold 64,019 shares for $22.68, generating $1.45 million from the sale.
• EVP & Chief Marketing Officer Stephen A. Colanero sold 50,588 shares for $22.65, generating $1.15 million from the sale.
• EVP & Chief Content Officer Elizabeth F. Frank sold 46,165 shares for $22.42, generating $1.04 million from the sale.
• SVP, General Counsel and Secretary Kevin M. Connor sold 37,500 shares for $23.70, generating $888,750 from the sale.
• SVP & Chief Accounting Officer Chris A. Cox sold 20,000 shares for $22.97, generating $459,400 from the sale.

You can view the list of recent insider transactions for AMC Entertainment Holdings, Inc. here.

5. Micron Technology, Inc. (MU): $97.36

Shares of this semiconductor company were sold by 2 insiders:

• EVP, Global Operations Manish H. Bhatia sold 97,107 shares for $96.02, generating $9.32 million from the sale.
• SVP, Worldwide Sales Michael W. Bokan sold 20,000 shares for $93.83, generating $1.88 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Micron Technology, Inc. here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer: Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.