Better Cloud Stock: Docusign vs. Confluent

Docusign (DOCU) significantly outperformed Confluent (CFLT) over the past year, with its stock up 44% versus Confluent's 13% decline, despite Docusign's core e-signature business maturing and projected revenue growth slowing to an 8% CAGR by FY28. While Docusign has achieved GAAP profitability, Confluent, still unprofitable, is forecast for a faster 19% revenue CAGR through 2027, driven by real-time data streaming and AI market expansion. The analysis concludes that Confluent represents a better long-term investment due to its higher growth trajectory and more favorable valuation relative to that growth, alongside more positive insider sentiment, despite its higher sales multiple (7x vs. Docusign's 5x) and current lack of profitability.

Analysis

The market presents a clear divergence between Docusign (DOCU) and Confluent (CFLT), where past stock performance starkly contrasts with future growth expectations. Docusign's 44% stock appreciation over the past year is juxtaposed with a significant projected slowdown in its core e-signature business, with revenue growth forecast to decelerate from a 20% CAGR (FY21-25) to just 8% (FY25-28). While the company has achieved GAAP profitability, its valuation at 61 times forward earnings and 5 times sales appears rich for a maturing business. This valuation concern is further amplified by substantial insider selling, with nearly 2.1 million net shares sold over the last year. Conversely, Confluent, despite its stock slumping 13%, is projected to maintain a more robust revenue growth trajectory, with a 19% CAGR expected through 2027, down from 42% historically. The company remains unprofitable on a GAAP basis but is narrowing its losses and is positioned to benefit from secular tailwinds in real-time data streaming and AI. Its valuation at 7 times sales, while higher than Docusign's, is paired with significantly stronger growth prospects and more balanced insider activity, suggesting a potential misalignment between current market sentiment and long-term fundamentals.

Key Decisions for Investors

• Investors should be cautious of Docusign's high valuation (61x forward P/E) given its projected revenue growth slowdown to 8% and significant insider selling, which signals potential internal skepticism about near-term upside.
• For those with a higher risk tolerance, Confluent presents a growth-focused opportunity, as its 19% projected CAGR and exposure to the AI data market could justify its 7x sales multiple, but this requires patience with its current lack of GAAP profitability.
• Consider monitoring Docusign's progress in scaling its new, lower-margin Intelligent Agreement Management (IAM) platform, as its execution will be critical to offsetting the maturation of its core business and justifying its growth stock valuation.
• A relative value strategy could be considered, favoring Confluent over Docusign, based on the starkly different forward-looking growth profiles and contrasting insider sentiment between the two companies.