Investor demands for profitability catch tech companies flat-footed

Shares of DocuSign are off 25% in pre-market trading today after it reported earnings last night, pushing the value of shares in the e-signature company under pre-COVID levels.

Given that the market is valuing DocuSign at a cheaper price than it did in early 2020, you might think that it is struggling. Hardly. Coming off a huge period of pandemic-fueled growth, DocuSign posted 25% in top-line expansion in its most recent quarter, with revenue coming in at $588.7 million, around $7 million ahead of street expectations. Even more, the company’s growth target for its current fiscal year brackets investor expectations.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

Confused by DocuSign undergoing such a sharp repricing after reporting better-than-expected trailing growth and in-line guidance? Don’t be. DocuSign has committed the new cardinal sin of technology companies: losing more money as growth slows.

As market mania fades from 2021 highs, investor expectations are changing rapidly, and it’s catching a host of technology companies flat-footed.

The shock of the end of the growth-at-all-costs era is not merely a shift from a preference for revenue expansion toward profitability. No, many tech companies are currently navigating a deceleration to their more natural rate of growth, while profit demands are rising. It’s hard to retard a growth deceleration while also making more money, but that’s what investors want. And signs abound that it’s not going well.

Pivot to profits

DocuSign’s quarter included free cash flow of $174.6 million, up from $123.0 million in the year-ago period. But at the same time, GAAP net income got worse at the former unicorn:

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

That’s a no-no.

Tech companies are racing to avoid the same fate. The pivot to profitability — really the pivot to losing less money — is in effect around the world. A few recent bits of news make our case: