RingCentral's (NYSE:RNG) Posts Q3 Sales In Line With Estimates, Stock Soars
Office and call center communications software provider RingCentral (NYSE:RNG) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 9.7% year on year to $558.2 million. The company also expects next quarter's revenue to be around $570 million, in line with analysts' estimates. Turning to EPS, RingCentral made a non-GAAP profit of $0.78 per share, improving from its profit of $0.55 per share in the same quarter last year.
Is now the time to buy RingCentral? Find out by accessing our full research report, it's free.
RingCentral (RNG) Q3 FY2023 Highlights:
Revenue: $558.2 million vs analyst estimates of $554.1 million (small beat)
EPS (non-GAAP): $0.78 vs analyst estimates of $0.75 (3.9% beat)
Revenue Guidance for Q4 2023 is $570 million at the midpoint, roughly in line with what analysts were expecting
Gross Margin (GAAP): 69.7%, up from 67.1% in the same quarter last year
“RingCentral is leveraging its leading position in Unified Communications to transform into an AI-first, multi-product company with proprietary offerings across UCaaS, CCaaS, Conversation and Revenue Intelligence, and Events, Webinars and Meetings,” said Tarek Robbiati, RingCentral’s CEO.
Founded in 1999 during the dot-com era, RingCentral (NYSE:RNG) provides software as a service that unifies phone, text, fax, video calls and chat in one platform.
Video Conferencing
Work is becoming more distributed, both across geographies and devices. In order for businesses to keep functioning efficiently, they need to be able to communicate as well as they did when the teams were co-located, which drives the demand for integrated communication platforms.
Sales Growth
As you can see below, RingCentral's revenue growth has been strong over the last two years, growing from $414.6 million in Q3 FY2021 to $558.2 million this quarter.
RingCentral's quarterly revenue was only up 9.7% year on year, which might disappoint some shareholders. However, we can see that the company's revenue grew by $18.9 million quarter on quarter, accelerating from $5.6 million in Q2 2023.
Next quarter's guidance suggests that RingCentral is expecting revenue to grow 8.6% year on year to $570 million, slowing down from the 17% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 9.4% over the next 12 months before the earnings results announcement.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. RingCentral's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 69.7% in Q3.
That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite trending up over the last year, RingCentral's gross margin is poor for a SaaS business. We have no doubt that shareholders would like to see its improvements continue.
Key Takeaways from RingCentral's Q3 Results
Sporting a market capitalization of $2.7 billion, RingCentral is among smaller companies, but its more than $432.4 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
It was great to see RingCentral beat analysts' adjusted EBIT and EPS estimates this quarter, driven by better-than-expected subscription revenue and cost efficiencies. Furthermore, it raised its full-year adjusted EBIT and free cash flow guidance. Zooming out, we think this was a good quarter, showing that the company is on target. The stock is up 5.7% after reporting and currently trades at $29.85 per share.
So should you invest in RingCentral right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
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The author has no position in any of the stocks mentioned in this report.
