RingCentral (NYSE:RNG) Misses Q4 Revenue Estimates, Stock Drops 10.1%

Anthony Lee /
2023/02/15 4:07 pm EST
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Office and call centre communications software provider RingCentral (NYSE:RNG) missed analyst expectations in Q4 FY2022 quarter, with revenue up 17% year on year to $524.7 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $528 million at the midpoint, or 3.12% below analyst estimates. RingCentral made a GAAP loss of $284.1 million, down on its loss of $118.4 million, in the same quarter last year.

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RingCentral (RNG) Q4 FY2022 Highlights:

  • Revenue: $524.7 million vs analyst estimates of $527.9 million (0.6% miss)
  • EPS (non-GAAP): $0.60 vs analyst estimates of $0.59 (1.66% beat)
  • Revenue guidance for Q1 2023 is $528 million at the midpoint, below analyst estimates of $545 million
  • Management's revenue guidance for upcoming financial year 2023 is $2.19 billion at the midpoint, missing analyst estimates by 6.19% and predicting 10.1% growth (vs 25.2% in FY2022)
  • Free cash flow was negative $13.6 million, down from positive free cash flow of $20.5 million in previous quarter
  • Gross Margin (GAAP): 69.4%, in line with same quarter last year

"We are in a select category of SaaS companies with over $2 billion of recurring revenue, and our Q4 results reflect our ability to deliver healthy growth and increasing profitability as we continue to scale," 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 strong over the last two years, growing from quarterly revenue of $334.5 million in Q4 FY2020, to $524.7 million.

RingCentral Total Revenue

This quarter, RingCentral's quarterly revenue was once again up 17% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $15.7 million in Q4, compared to $22.1 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates RingCentral is expecting revenue to grow 12.9% year on year to $528 million, slowing down from the 32.7% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $2.19 billion at the midpoint, growing 10.1% compared to 24.7% increase in FY2022.

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.


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 69.4% in Q4.

RingCentral Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.69 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 Q4 Results

With a market capitalization of $4.32 billion RingCentral is among smaller companies, but its more than $270 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.

We enjoyed seeing RingCentral’s improve their gross margin materially this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that RingCentral's revenue guidance for the full year missed analysts' expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results were not the best we've seen from RingCentral. The company is down 10.1% on the results and currently trades at $43.54 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.

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