Trending Up: Market Transition And Company Investments Should Make For Continued Forward Momentum; 1Q17 Metrics Encouraging; Raising PT To $35
​1Q17 revs inline, EPS beat; VAR channel offset AT&T decline. RingCentral (RNG) reported 1Q17 (Mar) non-GAAP EPS of $0.03 on sales of $111.8M (SRP, Street Estimates, midpoint of mgmt. guidance: $0.02 on $110.7M; figure 1). Accelerated 50+ seat business (including closing six 7 figure deals) and channel sales drove revs. Mid-market/enterprise ARR grew +86%Y/Y. More importantly, AT&T’s decline is being offset by VARs’ growth. While mgmt. focused during the call on their move upmarket, our calculations indicate that their historic base, SMB, ARR grew 24% Y/Y which is noteworthy considering flat SMB S&M spending. SMB remains their bread and butter and key in reaching $1B revs by 2020. RNG generated FCF (+2M) for the fifth Q in a row and raised 2017 FCF target. Mgmt. introduced 2Q17 (Jun) guidance inline with Street though brought up 2017 EPS. So far this reporting season, RNG has set the high bar in terms of UCaaS rev growth and we are encouraged by the metrics. We tweak our estimates (fig 2) and maintain BUY and raise our price target to $35 from $28 based on 5.7x 2017 sales of $491M, a multiple in line with high growth SaaS peers like HUBS, ZEN, and EGHT.
RingCentral is a provider of software-as-a-service solutions. The company's product portfolio, among others, includes: RingCentral Office, which provides a unified activity for communication and collaboration across multiple modes; RingCentral Meetings, which is a collaborative meetings solution that provides web meetings, video conferencing, and screen sharing integrated with team messaging; RingCentral Professional, which is a cloud based virtual telephone service offering designed for personnel who are on the go; and RingCentral Fax, which provides online fax capabilities that allow businesses to send and receive fax documents without the need for a fax machine.
Summit Insights Group LLC (SIG), founded by Srini Nandury in 2018, is a fundamentals-driven, technology-focused, equity research boutique. SIG analysts cover Semiconductors, Semicap Equipment, Enterprise & Application Software, and IT Hardware & Storage companies. The firm also provides insight into adjacent areas such as Mobile and Internet Technologies.
SIG provides deep, rigorous technology and financial analysis, unlike Wall Street analysis that is mainly driven by financial models. SIG principal analysts are known for their extensive industry experience, which we believe is essential to evaluate technology industry stocks. Each principal analyst has at least 5 years of hands-on industry experience prior to their tenure in equity analysis. SIG analysts are known for making non-consensus prescient stock calls.
SIG analysts follow more than 100 stocks regularly in the areas of Enterprise and Application Software, Storage, Networking, Security, Flash Memory, Big Data, Storage Networking, SSD and Processors. SIG analysts have access to the managements of both public and private companies to verify factual items from public comments or published statements, buttressing the integrity of our analysis. SIG analysts regularly attend industry conferences and visit startup companies to understand technology trends driving the industry. SIG is not a broker dealer, hence it does not have investment banking or trading conflicts. At SIG, we value integrity, our client interests and confidentiality above all else.
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