Docusign, Inc. DOCU will report its third-quarter fiscal 2025 results on Thursday after the bell.

The Zacks Consensus Estimate for earnings in the to-be-reported quarter stands at 86 cents, indicating 8.9% growth from the year-ago reported quarter. The consensus estimate for revenues stands at $744.3 million, implying 6.3% year-over-year growth. There has been no change in analyst estimates or revisions lately.

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The company has an impressive earnings surprise history. Earnings surpassed the Zacks Consensus Estimate in the trailing four quarters with an earnings surprise of 18.3%, on average.

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Q3 Earnings Beat for DOCU?

Our proven model doesn’t conclusively predict an earnings beat for DOCU this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

DOCU has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Customer Acquisition Should be DOCU’s Key Driver in Q3

We expect revenue increases from existing customers and new customer additions to have driven top-line growth in the quarter. With direct and indirect go-to-market initiatives in place, we expect Docusign to increase its sales in the quarter.

The consensus estimate for subscription revenues is pegged at $723.1 million, indicating 6% year-over-year growth. The consensus mark for professional services and other revenues is pegged at $20.3 million, implying 12.1% year-over-year growth.

DOCU Stock Looks Pricey

Docusign's stock has gained 75% in the past year compared with the 44% rally of the industry and the 32% growth of the Zacks S&P 500 composite.

DOCU Stock One-Year Price Performance

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The stock is looking pricey due to the recent surge, currently trading at 79.47X trailing 12-month Price-to-earnings ratio, well above the industry’s 46.81X.

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Investment Considerations for DOCU

Docusign’s top line is benefiting from continued customer demand for eSignature in a large addressable market. DOCU’s customer base has grown steadily, with 1.1 million in fiscal 2022, 1.3 million in fiscal 2023, and 1.5 million in fiscal 2024. Taking the trend into consideration, we can expect this growth to be sustained in the coming years as well. Despite this rising demand, the market for eSignature remains largely untapped. Therefore, Docusign has ample opportunities to expand eSignature across businesses globally, which will boost its revenues.

Recent product innovations, like AI-enabled identity verification and QES-compliant Identity Wallet, are gaining traction. Docusign's partnerships with Salesforce CRM and Microsoft MSFT have strengthened its market position, while the acquisition of Lexion enhances its Intelligent Agreement Management platform with AI-driven capabilities.

Your Strategy With DOCU Before Earnings

Given the mixed indicators ahead of Q3 earnings, a "Hold" strategy for Docusign appears prudent. While the company has demonstrated consistent revenue growth and strong customer acquisition, its current valuation — trading at a significant premium to the industry — raises caution.

DocuSign’s historical performance is impressive, with consistent earnings surprises. However, the current combination of Earnings ESP and Zacks Rank reduces the likelihood of earnings beat in the third quarter.

Investors should monitor third-quarter results, particularly subscription revenue performance and any updates on cost management. A strong earnings surprise or improved guidance could warrant a reassessment. Until then, holding DOCU allows investors to benefit from its long-term growth prospects while mitigating risks from its elevated valuation.

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