Stock Story -
Office and call centre communications software provider RingCentral (NYSE:RNG) reported Q3 CY2024 results topping the market’s revenue expectations, with sales up 9.1% year on year to $608.8 million. On the other hand, the company expects next quarter’s revenue to be around $612 million, slightly below analysts’ estimates. Its non-GAAP profit of $0.95 per share was also 3% above analysts’ consensus estimates.
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RingCentral (RNG) Q3 CY2024 Highlights:
- Revenue: $608.8 million vs analyst estimates of $602.1 million (1.1% beat)
- Adjusted EPS: $0.95 vs analyst estimates of $0.92 (3% beat)
- EBITDA: $149 million vs analyst estimates of $147.4 million (1.1% beat)
- Revenue Guidance for Q4 CY2024 is $612 million at the midpoint, below analyst estimates of $616 million
- Adjusted EPS guidance for the full year is $3.69 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 70.4%, in line with the same quarter last year
- Operating Margin: 0%, up from -9.7% in the same quarter last year
- EBITDA Margin: 24.5%, up from 22.9% in the same quarter last year
- Billings: $607.7 million at quarter end, up 8.1% year on year
- Market Capitalization: $3.44 billion
Company OverviewFounded 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
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Over the last three years, RingCentral grew its sales at a tepid 16.8% compounded annual growth rate. This shows it failed to expand in any major way, a rough starting point for our analysis.This quarter, RingCentral reported year-on-year revenue growth of 9.1%, and its $608.8 million of revenue exceeded Wall Street’s estimates by 1.1%. Management is currently guiding for a 7.1% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 7.6% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and illustrates the market thinks its products and services will face some demand challenges.
Billings
In addition to revenue, billings is a non-GAAP metric that sheds additional light on RingCentral’s business quality. Billings is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.Over the last year, RingCentral’s billings growth has slightly underperformed the sector, averaging 9.6% year-on-year increases and coming in at $607.7 million in the latest quarter. This performance mirrored its revenue and suggests there may be increasing competition that is causing challenges in acquiring or retaining customers.
Customer Acquisition Efficiency
Customer acquisition cost (CAC) payback represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for marketing and sales investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.It’s very expensive for RingCentral to acquire new customers as its CAC payback period checked in at 95.3 months this quarter. The company’s inefficiency indicates a highly competitive environment with little differentiation between RingCentral’s products and its peers.