By Senad Karaahmetovic
RingCentral (NYSE:RNG) reported better-than-expected third quarter results to send its shares nearly 13% higher in pre-market trading.
The company reported EPS of $0.55 on revenue of $509 million, beating the consensus of $0.50 on revenue of $502.79 million. RingCentral said its software subscription revenue soared 25% year-over-year to $483.2 million, ahead of analyst estimates.
The operating margin came in at 13.5% to top the 12.5% consensus. CEO Vlad Shmunis noted "a difficult macro environment," but still the company was able to exceed its expectations, he added.
For this quarter, RingCentral sees EPS between $0.59 and $0.60 on revenue of $504 million (the midpoint), which compares to the average analyst estimate of $0.59 on revenue of $544.97 million.
On a full-year basis, the EPS is seen in the $1.97-1.98 range on revenue of $1.888 billion to $1.893 billion.
Deutsche Bank analysts cut the price target to $50 per share from $70, but still weighed in positively on the results.
"We still believe the key sources of investor pushback to the RingCentral story are unlikely to dissipate any time soon. These include competitive risk (Teams/Zoom), long-term secular concerns around enterprise telephony, and risks around Avaya's financial viability (to name a few)," the analysts said in a client note.
"At the same time, we are well aware RNG remains unprofitable on a GAAP basis (DBe: through 2025E). That said, with sentiment heavily depressed and the shares now trading at 10x 2023E P/FCF (despite an estimated 60%+ CAGR through 2025E), we believe RNG's FCF story is an underappreciated one, with a risk/reward equation that skews more favorably over a 12-month time frame," the analysts added.