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RingCentral (NYSE:RNG) Exceeds Q2 Expectations, Stock Soars


Jabin Bastian /
2022/08/02 4:20 pm EDT
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Office and call centre communications software provider RingCentral (NYSE:RNG) reported results ahead of analyst expectations in the Q2 FY2022 quarter, with revenue up 28.3% year on year to $486.8 million. However, guidance for the next quarter was less impressive, coming in at $502 million at the midpoint, being 1.08% below analyst estimates. RingCentral made a GAAP loss of $159.5 million, down on its loss of $110.9 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) Q2 FY2022 Highlights:

  • Revenue: $486.8 million vs analyst estimates of $479.2 million (1.59% beat)
  • EPS (non-GAAP): $0.45 vs analyst estimates of $0.41 (9.75% beat)
  • Revenue guidance for Q3 2022 is $502 million at the midpoint, below analyst estimates of $507.5 million
  • The company reconfirmed revenue guidance for the full year, at $2 billion at the midpoint
  • Free cash flow of $29.4 million, down 23.7% from previous quarter
  • Gross Margin (GAAP): 67.5%, down from 72.3% same quarter last year

“Our second quarter key metrics exceeded the high end of our guidance range and demonstrated our consistent execution,” 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, which drives the demand for integrated communication platforms.

Sales Growth

As you can see below, RingCentral's revenue growth has been very strong over the last year, growing from quarterly revenue of $379.2 million, to $486.8 million.

RingCentral Total Revenue

This quarter, RingCentral's quarterly revenue was once again up a very solid 28.3% year on year. Quarter on quarter the revenue increased by $19.2 million in Q2, which was in line with Q1 2022. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.

Guidance for the next quarter indicates RingCentral is expecting revenue to grow 21% year on year to $502 million, slowing down from the 36.5% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 23.2% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 67.5% in Q2.

RingCentral Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from RingCentral's Q2 Results

With a market capitalization of $4.62 billion RingCentral is among smaller companies, but its more than $306.4 million in cash and positive free cash flow over the last twelve months give us confidence that RingCentral has the resources it needs to pursue a high growth business strategy.

It was good to see RingCentral deliver strong revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a mixed quarter for RingCentral. The company is up 8.67% on the results and currently trades at $54 per share.

RingCentral may have had a tough quarter, but does that actually create an opportunity to 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.