## DocuSign's Strong Q3 Fiscal 2026 Results Fail to Lift Stock Price

DocuSign Inc. (DOCU) delivered solid third-quarter fiscal 2026 earnings that beat expectations on both the top and bottom lines, yet the market responded with indifference. Since the December 4 earnings announcement, shares have tumbled 4.9%, signaling a classic case of "sell the news" despite positive results.

### Earnings and Revenue Performance

The company's adjusted EPS of $1.01 (excluding 61 cents in one-time items) surpassed the Zacks Consensus forecast by nearly 10%, climbing 12.2% year-over-year. Total quarterly revenues reached $818.4 million, topping consensus by 1.5% and representing 8.4% growth compared to Q3 of fiscal 2025. These figures demonstrate DocuSign's consistent execution, yet failed to catalyze upside momentum in the stock price.

### Breaking Down Revenue Streams

Subscription revenue—the company's primary growth engine—totaled $800.96 million, up 9% annually and exceeding the Zacks estimate of $788.4 million. This strength confirms DocuSign's recurring revenue model remains resilient. However, professional services and other revenues slipped to $17.39 million, down 13.6% year-over-year and missing the $17.70 million expectation.

Billings expanded to $829.5 million, a 10% year-over-year increase that substantially outpaced the anticipated $792.8 million. This metric suggests strong future revenue visibility, though the stock market appears to have overlooked this positive signal.

### Profitability Margins Expand

The non-GAAP gross margin of 81.8% came in better than the 81.1% estimate, though it compressed slightly from 82.5% in the year-ago period. Non-GAAP gross profit of $669.5 million climbed 7.6% annually, surpassing the $653.9 million projection.

More impressively, the non-GAAP operating margin reached 31.4%, representing a 180 basis point expansion from the prior-year quarter and significantly beating the 28.1% consensus. This margin acceleration highlights DocuSign's operating leverage and cost discipline.

### Cash Position and Liquidity

DocuSign closed Q3 with $583.29 million in cash and equivalents, down from $648.6 million at fiscal 2025 year-end. Operating cash flow for the quarter totaled $290.3 million, while free cash flow generation amounted to $262.9 million—a healthy figure that underscores the company's financial strength despite share price weakness.

### Forward Guidance: Steady but Unspectacular

For Q4 fiscal 2026, management guides for revenues between $825-$829 million, with the midpoint of $827 million sitting just above the $826.3 million consensus estimate. Subscription revenues are expected to range from $808-$812 million, while billings guidance points to $992 million to $1 billion.

Full-year fiscal 2026 revenue guidance sits at $3.208-$3.212 billion, in line with the $3.21 billion consensus. Subscription revenues are projected at $3.140-$3.144 billion with billings between $3.379-$3.389 billion. Margins are anticipated to hold firm, with non-GAAP gross margin at 81.7-81.8% and operating margin at 29.8-29.9%.

### The Verdict

DocuSign's Q3 results reflect a company firing on most cylinders—revenue growth, margin expansion, strong billings, and healthy cash generation. Yet the 4.9% post-earnings pullback suggests investors may be pricing in slower growth ahead or calibrating valuations after a recent run. The company currently holds a Zacks Rank #3 (Hold), indicating Wall Street sees limited upside catalysts in the near term despite fundamentally sound execution.