Investor demands for profitability take tech companies by surprise

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Promotions DocuSign fell 25% in pre-market trading today after earnings were reported last night, sending the e-signature company’s share price down to pre-COVID levels.

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With the market pricing DocuSign at a lower price than it was at the start of 2020, you might think it is having a hard time. Barely. After a huge period of growth caused by the pandemic, DocuSign posted a 25% increase in revenue in the most recent quarter, with revenues of $588.7M, which is about $7M. ahead of the expectations of the street. Moreover, the company growth goal for the current financial year does not meet the expectations of investors.

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Confused that DocuSign is undergoing such a drastic repricing after reporting better-than-expected trailing growth and inline guidance? Do not be. DocuSign has committed a new deadly sin for tech companies: losing more money as growth slows.

As market mania fades from 2021 highs, investor expectations changing rapidlyand it took a lot of tech companies by surprise.

The shock of the end of an era of growth at any cost is not just a shift from a preference for higher revenues to profitability. No, many tech companies are currently slowing down to more natural growth rates as profit demands rise. It’s hard to contain a slowdown while making more money, but that’s what investors want. And there are plenty of signs that things are not going well.

Turn to Profit

The DocuSign quarter posted free cash flow of $174.6 million, up from $123.0 million last year. But at the same time, the former unicorn’s GAAP net income worsened:

GAAP net loss per basic and diluted share was $0.14 per 200 million shares outstanding, compared with $0.04 per 194 million shares outstanding in the same period last year.

It’s a no-no.

Tech companies are looking to avoid the same fate. The pivot to profitability—actually, the pivot to less money lost—is operating all over the world. A few recent news make our case:

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