Will RingCentral Pay 100% Returns to New Buyers?

As business teams become increasingly global and remote, it can be a challenge to keep an enterprise connected. Teams often use multiple devices and various communication methods in a single session, for example video conferencing and instant messaging.

Unified communications is the integration of all those aspects across an organization, which can dramatically improve productivity and efficiency.

While Zoom and Microsoft Teams might be the most widely known UC companies, Ringcentral (NYSE: RNG) has emerged as a contender with its cloud-based unified-communications-as-a-service (UCaaS) platform.

Understandably, the stocks of UC companies surged a few years ago as remote work took off, and RNG was no exception. RNG share price traded at over $440 per share in early 2021 but much like rival Zoom, RingCentral shares have fallen far off their highs and haven’t bounced back.

Now trading at roughly $30 per share, will RingCentral double over the next decade?

Key Points

• RingCentral is showing signs of recovery, beating revenue and earnings expectations, raising its 2024 revenue guidance, and improving profitability.
• New products like RingCX and key partnerships, such as with Cox Communications, are driving growth.
• Analysts are cautiously optimistic, with a high price target that aligns with a discounted cash flow forecast analysis.

RingCentral Turnaround On The Horizon?

RingCentral has beaten revenue and earnings expectations over the past four quarters, and it just raised its guidance for the fiscal year, which seems to signal a turnaround for the unified communications industry.

In the second quarter of 2024, RingCentral’s revenue of $593 million was a 10% increase year-over-year, and it beat revenue estimates by 1.1%. The cloud-based company’s subscription revenue is the lion’s share of its sales, and that revenue also climbed by 10% in Q2.

RingCentral’s net loss of $14.75 million was still an over 31% improvement from last year and the company’s loss per share narrowed to $0.16 from $0.23 last year, beating earnings estimates by 3.6%.

On the balance sheet, RingCentral had $199 million in cash and cash equivalents at the end of Q2.

After the successful quarter, RingCentral’s leadership raised its guidance for full-year 2024. The company had previously expected between $2.379 to $2.399 billion in revenue, which translates to between 8% and 9% year-over-year growth.

The revised forecast for total revenue came in between $2.393 and $2.399 billion, representing 9% annual growth.

“Given our strong operating performance and focus on efficiency, we are again raising our full year revenue and free cash flow outlook,” said Sonalee Parekh, RingCentral’s CFO. “With our strong free cash flow generation, we are planning to use a portion of it to reduce our gross debt from $1.5 billion today to no more than $1 billion before the end of 2026, as well as to at least fully offset dilution from stock-based compensation via buybacks.”

Will RingCentral Stock Go Back Up?

The company’s leadership attributed the strong second quarter to new products, like RingCX, the company’s AI-driven Contact Center-as-a-Service platform, which can reduce costs by outsourcing IT support.

Since RingCX’s November launch the platform has added 350 organizations, many of whom were existing customers of RingEX.

Ring EX is the company’s flagship UCaaS platform, and RingCentral has succeeded in connecting many of its products, a strategy that is paying off in sales. The company’s leadership said over 25% of RingCentral’s $1 million plus deals include both RingEX and RingCX.

Bolstering the company’s suite of offerings is RingSense, a conversation intelligence platform for sales teams which has gained 800 users since its launch last year. RingCentral has fueled higher customer purchase values through add-ons for clients who subscribe to multiple services.

That cohesion helped RingCentral ink a deal with Cox Communications, the largest private broadband provider in the U.S., to develop their upcoming UCaaS and CCaaS offerings.

“Demand in our core UCaaS business remains solid, our new products are gaining traction, our pace of innovation is quickening, and we are expanding our partnerships as we welcome Cox Communications to our global service provider family,” said Vlad Shmunis, RingCentral’s Founder and CEO. “We are doing all this while continuing to improve profitability, reduce stock-based compensation, and grow free cash flow. We believe this will generate value for all our stakeholders over time.”

How Do Analysts Rate RingCentral?

Even after all RingCentral’s positive momentum, analysts are split between buy and hold ratings. The 24 analysts who have weighed in are largely on the same page with 12 believe rating the stock as a Buy, and 3 assessing it to be an outperform over the next 12 months.

The highest price target is $55 per share, which translates to a 79.2% gain from where RNG currently trades.

The average price target is $41.44 per share, which would still be a 35% gain over the next 12 months.

There is no Sell rating on the stock, and the lowest forecast has RNG rising 1% to $31 in the coming year.

The consensus is for RingCentral stock to rise from here and that sentiment appears to be substantiated by the company’s low 1.24 price-to-sales multiple.

That P/S ratio is far lower than the average tech company, especially one that has demonstrated year-over-year sales growth like RingCentral. By comparison, Zoom has a 4.6x multiple even after its recent decline.

RingCentral doesn’t pay a dividend but it has actively worked to repurchase its stock.The company bought back $82 million of its shares in Q2 and it plans to repurchase $326 million more.

Will RingCentral Double?

RingCentral has the potential to rise to $60 per share, a virtual double, according a discounted cash flow forecast analysis.

Although RingCentral share price has declined for years, the company has made significant strides forward. It continues to beat revenue and earnings estimates, and it raised revenue guidance for the year, plus the company is approaching profitability.

It’s no secret that businesses have dramatically cut expenses in recent years due to inflation and high interest rates. That could be one of the reasons why the company struggled in recent years, and it could be a reason to believe that RingCentral and other unified communications companies could due for a rally.

Whether that rally can push RingCentral to the top of the UC heap over the next decade remains to be seen but it certainly has built a strong suite of products and gained significant clients and that could be the foundation for future success.