Why Is RingCentral (RNG) Down 0.7% Since Last Earnings Report?
It has been about a month since the last earnings report for RingCentral (RNG). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is RingCentral due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
RingCentral Q2 Earnings Top Estimates, Revenues Up Y/Y
RingCentral reported second-quarter 2023 non-GAAP earnings of 83 cents per share, surpassing the Zacks Consensus Estimate by 10.67% and increasing 84.4% year over year.
Net revenues of $539 million surpassed the consensus mark by 0.6% and increased 10.8% year over year.
Quarter Details
Software subscription (95.2% of total revenues) revenues of $514 million beat the Zacks Consensus Estimate by 0.29% and increased 10.9% year over year.
Other revenues (4.8% of total revenues) of $25.7 million beat the consensus mark by 7.49% and increased 7.4% year over year.
Annualized Exit Monthly Recurring Subscriptions (“ARR”) of $2.22 billion missed the consensus mark by 1.26% but increased 12% year over year. Mid-market and Enterprise ARR increased 13% year over year to $1.37 billion.
The second-quarter 2023 non-GAAP gross margin contracted 30 basis points (bps) from the year-ago quarter’s levels to 78.1%.
Research and development expenses declined 9.5% year over year to $54.4 million on a non-GAAP basis. Sales and marketing expenses were down 1.1% to $221.5 million. General and administrative expenses declined 4.1% to $40.6 million in the reported quarter.
On a non-GAAP basis, operating income was $104.4 million, up 89.3% year over year. The non-GAAP operating margin expanded 800 bps from the year-ago quarter’s levels to 19.4%.
Balance Sheet
As of Jun 30, 2023, cash and cash equivalents were $225.4 million compared with $274.8 million as of Mar 31, 2023.
Cash flow from operations was $90.7 million in the second quarter compared with first-quarter 2023 figure of $108.5 million.
Non-GAAP free cash flow was $81 million compared with $54 million reported in the previous quarter.
Guidance
For the third quarter of 2023, RingCentral expects revenues between $552 million and $556 million, indicating a year-over-year growth of 8-9%.
Subscription revenues in the quarter are expected to be between $526 million and $530 million, indicating a year-over-year growth of 9-10%.
The non-GAAP operating margin is expected to be 18-18.5% in the third quarter. Earnings are expected to be 75-78 cents per share.
For 2023, RingCentral maintains its revenue guidance to $2.187 billion and $2.205 billion, indicating a year-over-year growth of 10-11%.
Subscription revenues for the year are expected to be between $2.086 billion and $2.104 billion, suggesting a year-over-year growth of 11%.
The non-GAAP operating margin is expected to be between 18.5% and 19% for 2023.
Earnings are expected to be between $3.11 and $3.25 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -402.64% due to these changes.
VGM Scores
At this time, RingCentral has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, RingCentral has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
RingCentral belongs to the Zacks Internet - Software and Services industry. Another stock from the same industry, VeriSign (VRSN), has gained 1.5% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
VeriSign reported revenues of $372 million in the last reported quarter, representing a year-over-year change of +5.7%. EPS of $1.79 for the same period compares with $1.54 a year ago.
For the current quarter, VeriSign is expected to post earnings of $1.74 per share, indicating a change of +10.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.6% over the last 30 days.
VeriSign has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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