DocuSign shares plunge 40% after the company gave weak guidance

The Docusign Inc. website on a laptop computer arranged in Dobbs Ferry, New York, U.S., on Thursday, April 1, 2021.

Shares of e-signature software maker DocuSign were down roughly 40% Friday morning after the company reported guidance for the fourth quarter that fell short of analyst estimates.

DocuSign predicted fourth-quarter revenue would come between $557 million and $563 million, while analysts had on average expected revenue of $573.8 million for the quarter, according to Refinitiv.

Still, DocuSign beat analyst expectations for the third quarter, reporting earnings per share of 58 cents, adjusted, compared to 46 cents analysts anticipated, and $545.5 million in revenue versus $531 million expected, according to Refinitiv.

Several firms, including JPMorgan, Piper Sandler, UBS and Wedbush lowered their ratings on the stock following the earnings report. While Citi analyst Tyler Radke maintained a buy rating, he cut his price target from $389 a share to $231, calling the report, "one of the biggest [software as a service] whiffs in recent memory."

"The pandemic tailwinds came to a much faster than expected halt for DocuSign, catching the company off guard," JPMorgan analyst Sterling Auty wrote in a note to clients.

CEO Dan Springer said in an interview on CNBC's "TechCheck" Friday that the primary reason for the slowed growth was on the company's execution, rather than macro forces.

"The piece that DocuSign missed is we got to a place over the last year, year and half where we were sort of fulfilling demand," Springer said. "And what we'd always done in the past is generated demand, out there driving customer success, finding new use cases."

Springer said the company "pulled back from that and we shouldn't have."

But, he said, righting the ship should not take too long, since the company has managed to retain customers and it just needs to go back to earlier strategies of creating new use cases for the product.

He called the market reaction to the earnings an "overly strong reaction."

The company has seen rapid growth as it benefited from the rise of remote work during the pandemic. DocuSign reported its sixth straight period of revenue growth of over 40%, but said in the next quarter it anticipates growth to come in around 30%.