2342

RingCentral (NYSE:RNG) Delivers Impressive Q3, Stock Jumps 17.2%


Jabin Bastian /
2021/11/09 4:52 pm EST
Add to Watchlist

Office and call centre communications software provider RingCentral (NYSE:RNG) beat analyst expectations in Q3 FY2021 quarter, with revenue up 36.5% year on year to $414.6 million. Guidance for next quarter's revenue was surprisingly good, being $434 million at the midpoint, 3.18% above what analysts were expecting. RingCentral made a GAAP loss of $146.7 million, down on its loss of $20.9 million, in the same quarter last year.

Is now the time to buy RingCentral? Access our full analysis of the earnings results here, it's free.

RingCentral (RNG) Q3 FY2021 Highlights:

  • Revenue: $414.6 million vs analyst estimates of $393.4 million (5.38% beat)
  • EPS (non-GAAP): $0.36 vs analyst estimates of $0.33 (7.67% beat)
  • Revenue guidance for Q4 2021 is $434 million at the midpoint, above analyst estimates of $420.5 million
  • Free cash flow of $24.2 million, up 68.3% from previous quarter
  • Gross Margin (GAAP): 73.3%, in line with same quarter last year

“Third quarter results were outstanding, with accelerating growth driven by ramping contributions from our key partners and momentum from our upmarket customers,” said Vlad Shmunis, RingCentral’s founder, chairman and CEO.

Founded 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.

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, and that drives the demand for integrated communication platforms like RingCentral.

Sales Growth

As you can see below, RingCentral's revenue growth has been very strong over the last year, growing from quarterly revenue of $303.6 million, to $414.6 million.

RingCentral Total Revenue

And unsurprisingly, this was another great quarter for RingCentral with revenue up 36.5% year on year. On top of that, revenue increased $35.3 million quarter on quarter, a very strong improvement on the $26.9 million increase in Q2 2021, and a sign of re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 22.5% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than RingCentral. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. RingCentral's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 73.3% in Q3.

RingCentral Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.

Key Takeaways from RingCentral's Q3 Results

With a market capitalization of $21.1 billion, more than $345.1 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We enjoyed seeing RingCentral’s impressive revenue growth this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 17.2% on the results and currently trades at $275.09 per share.

RingCentral may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.