RingCentral (RNG) Shares Gain on 'Strong' Results, Oppenheimer Upgrades to Outperform

Shares of RingCentral (NYSE: RNG) are up more than 6% in premarket trading Tuesday after the company reported better than expected Q1 results and surpassed expectations on Q2 and FY EPS forecasts.

RNG reported Q1 adjusted EPS of 39c, up from 27c in the year-ago period and above the consensus estimates of 34c. Revenue came in at $467.7 million, up 33% YoY and above the analyst expectations of $458.3 million. The company generated $439.9 million in software subscription revenue, up 35% YoY.

Looking ahead to Q2, RingCentral expects Q2 in the range of $475.5 million to $479.5 million, while analysts were looking for $477.2 million. The company expects adjusted EPS in the range of 40c to 41c, topping the analyst consensus of 38c per share. Software subscription revenue in the second quarter is expected to range between $449 million and $452 million.

On a full-year basis, RNG expects adjusted EPS in the range of $1.83 to $1.87, up from the previous forecast range of $1.69 to $1.72, and above the consensus projection of $1.71 per share.

The provider of cloud-based collaboration and communication solutions expects FY software subscription revenue in the range of $1.88 billion to $1.90 billion. Total revenue for the full year is expected between $1.99 billion and $2.02 billion, compared to the analyst expectations of $2.01 billion.

"We had a very strong start to the year, driven by continued success with large enterprise customers and ramping contributions from our partners," said founder, chairman and CEO of RingCentral, Vlad Shmunis.

Oppenheimer analyst Timothy Horan upgraded RingCentral from Perform to Outperform with a price target of $100.00.

"RingCentral should be a beneficiary of our very optimistic outlook on the overall cloud communications sector, which we predict (in a 50-page white paper) will grow fourfold to $100B within six years," analyst Timothy Horan wrote in a note.

Mizuho analyst Siti Panigrahi lowered the price target to $150.00 per share to reflect SaaS multiple compression (down from $220.00). However, the analyst remains positive after “strong results.”

“We expect RingCentral to deliver durable revenue growth (30%+) driven by its aggressive partnership strategy and potential for share gain within a large and growing TAM… RNG shares are currently trading an attractive valuation at 4x EV/NTM Revenue for a company that we believe can grow subscription revenue 30%+ Y/Y, and we thus recommend buying RNG shares,” Panigrahi said in a client note.

By Senad Karaahmetovic

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