It has been about a month since the last earnings report for RingCentral (RNG). Shares have lost about 1.5% 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 catalysts.
RingCentral Q3 Earnings Top Estimates, Revenues Up Y/Y
RingCentral reported third-quarter 2022 non-GAAP earnings of 55 cents per share, which surpassed the Zacks Consensus Estimate by 7.84% and jumped 52.8% year over year.
Net revenues of $509 million also beat the consensus mark by 1.21% and increased 22.8% year over year. The results reflect solid demand for RingCentral’s cloud-communication solutions.
Quarter Details
Software subscription (94.9% of total revenues) revenues increased 25.4% year over year to $483.2 million. Other revenues (5.1% of total revenues) declined 11.6% year over year to $25.8 million.
Annualized Exit Monthly Recurring Subscriptions (“ARR”) increased 25% year over year to $2.05 billion. Mid-market and Enterprise ARR increased 29% year over year to $1.25 billion.
Third-quarter 2022 non-GAAP gross margin contracted 90 basis points (bps) from the year-ago quarter to 77.2%.
On a non-GAAP basis, research & development expenses increased 4.1% year over year to $60.7 million. Sales and marketing expenses were up 20.5% to $220.7 million. General and administrative expenses rose 10.6% to $43 million in the reported quarter.
On a non-GAAP basis, operating income was $68.7 million, up 57.7% year over year. Non-GAAP operating margin expanded 300 bps from the year-ago quarter to 13.5%.
Balance Sheet
As of Sep 30, 2022, cash and cash equivalents were $305.4 million compared with $306 million as of Jun 30, 2022.
As of Sep 30, 2022, cash flow from operations was $42.3 million. Non-GAAP free cash flow was $20.5 million.
Key Q3 Developments
During the reported quarter, RingCentral announced advanced and highly differentiated AI-driven video meeting capabilities, along with extended browser support for RingCentral MVP and RingCentral Video customers.
RingCentral announced new advanced cloud phone and platform innovations, including new enhancements to Salesforce and HubSpot integrations, as well as bulk number management capabilities.
Guidance
For the fourth quarter of 2022, RingCentral expects revenues between $523 million and $529 million, indicating year-over-year growth of 17-18%.
Moreover, subscription revenues for the quarter are expected between $501.5 million and $506.5 million, indicating year-over-year growth of 19-21%.
Non-GAAP operating margin is expected to be 14% for the fourth quarter. Earnings are expected between 59 cents and 60 cents per share.
For 2022, RingCentral now expects revenues between $1.987 billion and $1.993 billion, indicating year-over-year growth of 25%.
Further, subscription revenues for the year are expected between $1.888 billion and $1.893 billion, implying year-over-year growth of 27-28%. The company reiterated the midpoint of $1.890 billion.
Non-GAAP operating margin is expected to be 12.4% for full-year 2022, up from the previous guidance of 12%.
Earnings are expected between $1.97 and $1.98 per share compared with the previous guidance of $1.91-$1.95 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 32.02% due to these changes.
VGM Scores
Currently, RingCentral has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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 A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise RingCentral has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
RingCentral is part of the Zacks Internet – Software and Services industry. Over the past month, Sabre (SABR), a stock from the same industry, has gained 16.8%. The company reported its results for the quarter ended September 2022 more than a month ago.
Sabre reported revenues of $663.39 million in the last reported quarter, representing a year-over-year change of +50.4%. EPS of -$0.25 for the same period compares with -$0.50 a year ago.
Sabre is expected to post a loss of $0.31 per share for the current quarter, representing a year-over-year change of +34%. Over the last 30 days, the Zacks Consensus Estimate has changed -4.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Sabre. Also, the stock has a VGM Score of D.
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