What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing last year. The pandemic completely changed the way we live and work. By putting a much greater emphasis on virtual technologies. You can use from home.

This was massively beneficial to the so-called stay at home stocks such as zoom and peloton. They saw demand for their products explode, while old economy companies were suffering, but the 64 million dollar question is how sustainable their growth will be. Now that vaccines are widely distributed and society is returning to some semblance of normality. A few weeks ago, peloton reported a disastrous earnings report where they missed analysts expectations on both the top and bottom lines, as well as drastically cut their full year guidance.

Since then, the stock has been cut more than in half. Now that people feel comfortable going to the gym demand for peloton's home fitness machines has evaporated. The stay at home. Stocks have created hundreds of billions of dollars of paper gains for investors and have helped the tech heavy qqq index increase more than 60 from its pre-pandemic levels.

Both individual and institutional investors alike now have huge allocations to stay-at-home stocks, with the disastrous peloton news still fresh in their minds. Investors are sitting at the edge of their seats waiting for the next shoe to drop in the stay at home, complex and just this past thursday. On december, 2nd we got exactly that docusign, which was one of the biggest coveted beneficiaries, reported earnings, despite beating on both the top and bottom lines. The stock price fell by more than 40 percent.

That's because the ceo gave guidance saying that their revenue and growth rate in the coming quarters will slow dramatically. One of the biggest losers of the recent price action was kathy wood, whose arc etfs lost more than 100 million dollars on their docusign positions. The all-time chart of docusign stock is very telling more than half of the gains it made since its ipo in 2018 were wiped out literally overnight. In this video we'll go over.

What docusign does how they achieved so much success during the pandemic and why the stock price fell more than 40 on friday. Docusign produces a software solution that allows people to sign business and legal documents from a smartphone or computer. This is very useful for large enterprises who have to sign formal documents on a daily basis. Imagine that you work at an insurance company every time you have to process an insurance claim.

You need to have policyholders sign documents if you have to go and meet with the policyholders in person. This can take a huge amount of time and travel expenses. Thus, docusign's easy to use online platform can save large companies millions of dollars per year by cutting out unnecessary travel costs and allowing their employees to focus on higher value activities. From a technological standpoint, one of docusign's biggest differentiators is their robust verification features.

They use picture verification of government-issued ids to make sure that people cannot fraudulently sign documents on behalf of someone else, even if you're not signing important documents online. Just about everyone has sensitive information, such as credit card and banking info stored online, with cyber breaches becoming more and more common. These days, it's more important than ever to make sure your sensitive data and browsing history remain secure and confidential. That's where our sponsor atlas.

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Thank you, docusign ipo'd. In 2018, with a valuation a little under 5 billion dollars, wall street immediately fell in love with this new and innovative software company and for good reason, their revenue grew rapidly as more and more customers want to sign up for their electronic service platform. For the second calendar quarter of 2017, through the first quarter of 2020, their revenue grew at an annualized rate of 37 percent. The company reported an operating loss in every quarter, but investors were willing to overlook this, given how strong their growth was in march of 2020.

The coronavirus pandemic spread rapidly throughout the world, forcing billions of people to study and work from home. This was a disaster for millions of restaurants and other small businesses who rely on in-person interaction, but it was a huge boon for docusign, with employees forced to work from home. Their online signature platform went from a convenience to a necessity, their revenue exploded to the upside, increasing at a fifty percent annualized rate from the first calendar quarter of 2021 through the third quarter of 2021, and while they continue to post operating losses, these losses strength to Almost break even these strong results push the stock price up to 310 dollars per share at the peak, giving it a market capitalization of 60 billion dollars. That's quite a hefty evaluation for a company only expected to do two billion dollars in sales this year and is still posting gaap losses that also makes it bigger than twitter, chipotle and other household names, but this all changed on thursday december 2nd when they released their Third quarter results: the stock price was almost cut in half wiping out close to 30 billion dollars of market cap.

So how bad were these results to justify such a draconian reaction as it turns out, their results actually beat expectations. They generated 545 million dollars of sales, which represents 42 growth year-over-year. In fact, they actually beat analysts expectations of 531 million dollars. The disappointment came from their fourth quarter.

Guidance. Keep in mind that docusign has a weird fiscal year where fiscal q4 2022 is three months ending january 31st. 2022. Their guidance is for roughly 560 million dollars.

Usually, guidance for one quarter out is pretty accurate because they know how their conversions with prospective customers are going and have a few months of visibility. So it's pretty safe to assume that they will make something close to their 560 million dollar guidance based on their guidance. Their revenue will only grow by 2.7 percent quarter over quarter. That's a sharp deceleration from their six point, six percent and nine point one percent growth in previous quarters.

Interestingly, their guidance wasn't even that far below analysts expectations. They were expecting 574 million dollars for the fourth quarter. Docusign's guidance of 560 million dollars is only 2.4 below that number. So, how is it possible? A stock can fall by 46 when they miss one quarter of guidance by just 2.4 percent.

It seems like a massive overreaction, but you have to look at the setup for the stock going into the earnings. Docusigns was by no means a cheap stock. At its peak it had a 60 billion dollar market cap, which is roughly 30 times their expected revenue. For this year - and this is revenue - not earnings - to justify this valuation, the company would probably have to five times their revenue within the next 10 years.

If they were somehow able to keep up their 50 analyzed growth rate they experienced during the pandemic. This could be possible, but that breakneck speed of growth is obviously unsustainable, even if all the customers they acquired during the pandemic stayed with them forever. They would need to constantly find new customers to keep their 50 annual growth rate. Eventually, everybody who would want to use docusign would already be using it and there's no more room for growth.

For a company like amazon or tesla. You could theoretically justify pretty much any valuation. They are always innovating and entering new businesses, so their total market opportunity is almost unlimited, but that's not the case for docusign they're, one trick pony that only focuses on their core market of electronic signatures. Signing documents is a minuscule portion of the overall economy, even if they continue to dominate that market.

Their opportunity is capped and they'll, probably never live up to the 60 billion valuation that they enjoyed at the peak wall. Street got lazy over the past year, and investors just bought any company that was benefiting from covid. They extrapolated the high percentage growth rates way too far and gave these companies absurd valuations. When that happens, the stock is walking on a knife's edge.

If growth slows down even a little bit, the stock price will be crushed like a souffle. Under a sledgehammer, one of the biggest holders of docusign was kathy. Wood's arkhan vest between their various etfs. They owned a little over one percent of donkey signs outstanding shares, which was worth almost 400 million dollars before the stock tanked.

With a share price cut in half, they lost almost 200 million dollars. Interestingly, they bought the dip after the earnings release, increasing their position by 50 for 1.6 million shares to 2.4 million, and while it is true that the dramatic fallen share price was probably an overreaction, the company was probably ridiculously overvalued to begin with. Now it's just less overvalued. Docusign was just the latest shoe to drop, but the stay-at-home complex has been steadily deteriorating over the past year.

Zoom communications is down 48. Since the beginning of this year, teledoc is down 54 and the biggest loser is peloton, which is down 70 percent docusign bucked the trend and was actually up a little bit, but of course, that all changed with their recent earnings report the severity of the price declines. We've seen in these high growth tech stocks is probably the most dramatic we've ever seen since the bursting of the dot-com bubble in 2000.. While a lot of the dot-com companies ended up going bankrupt, a few of them rose from the ashes and provided life-changing returns for those who bought the dip on the lows.

While this video is not financial advice, there are probably similar opportunities with some of these stay. At home stocks, now, at the very least, if you bought today, you're better off than the people who bought at the peak and are already down more than 50 percent, alright guys that wraps it up for this video. What do you think about docusign's earnings news? Do you think the decline in share price was an overreaction. Let us know in the comments section below as always.

Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.