DocuSign Inc.’s second round of job cuts seems like a “negative demand signal,” according to UBS analyst Karl Keirstead, who’s feeling increasingly cautious about the stock.

He downgraded shares of DocuSign

to sell from neutral Monday, warning that the company’s announcement last week of a 10% workforce reduction sends a weaker signal than the first round of cuts, which was announced in September and affected 9% of employees. DocuSign offers technology that lets parties collect electronic signatures on agreements.

Read: DocuSign plans to lay off 10% of its staff in second wave of job cuts in about five months

“While intrigued by changes that the new CEO might make, our latest round of checks … point to flattish/negative billings growth in [calendar year 2023/fiscal year 2024], a highly penetrated [total addressable market], an increasingly competitive rival in the form of Adobe, continued contract volume down-sizing risk upon renewals and a slowdown in the [contract-lifecycle-management] segment,” Keirstead wrote.

He doubts DocuSign will be able to get back to 10% or greater growth in billings given the company’s market penetration and the broader competitive landscape. Additionally, he said that the company “has historically been very tied to Salesforce, which embeds DocuSign,” and with Salesforce Inc.

“going through an unprecedented growth deceleration as well as internal disruption,” the dynamic could affect DocuSign this year.

While DocuSign’s recent layoffs may help operating margins, “we question just how big the margin upside will be due to top-line pressure,” Keirstead wrote.

Shares of DocuSign were plunging nearly 8% in morning trading Tuesday.

Keirstead also has concerns about DocuSign’s valuation, noting that the stock trades at 26 times estimated free-cash flow for the calendar year. He and his team “don’t think this multiple is compelling” given that it represents a premium to software peers and given the challenges they see facing DocuSign.

Shares of DocuSign are off 46% over the past 12 months, while the S&P 500

has declined about 7%.


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