Office and call centre communications software provider RingCentral (NYSE:RNG) reported Q2 FY2021 results topping analyst expectations, with revenue up 36.4% year on year to $379.2 million. RingCentral made a GAAP loss of $110.9 million, down on its profit of $509 thousand, 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 FY2021 Highlights:
- Revenue: $379.2 million vs analyst estimates of $358.7 million (5.7% beat)
- EPS (non-GAAP): $0.32 vs analyst estimates of $0.28 (14.4% beat)
- Revenue guidance for Q3 2021 is $392 million at the midpoint, above analyst estimates of $383.2 million
- The company lifted revenue guidance for the full year, from $1.5 billion to $1.54 billion at the midpoint, a 2.45% increase
- Free cash flow of $14.4 million, down 37.7% from previous quarter
- Gross Margin (GAAP): 72.3%, in line with previous quarter
“Second quarter results were outstanding, as contributions from our upmarket momentum and key partners including Avaya, Atos, AT&T, BT, and Telus continued to increase,” said Vlad Shmunis, RingCentral’s founder, chairman and CEO.
Founded in 1999 during the dot-com era, RingCentral 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.
As you can see below, RingCentral's revenue growth has been very strong over the last year, growing from quarterly revenue of $277.9 million, to $379.2 million.
And unsurprisingly, this was another great quarter for RingCentral with revenue up an absolutely stunning 36.4% year on year. On top of that, revenue increased $26.9 million quarter on quarter, a very strong improvement on the $17.8 million increase in Q1 2021, and a sign of acceleration of growth.
Analysts covering the company are expecting the revenues to grow 22.6% over the next twelve months, although we would expect them to review their estimates once they get to read these results.
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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, licences, technical support and other necessary running expenses was at 72.3% in Q2.
That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the lower 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 Q2 Results
Sporting a market capitalisation of $24.5 billion, more than $325.2 million in cash and with positive operating free cash flow over the last twelve months, we're confident that RingCentral has the resources it needs to pursue a high growth business strategy.
We liked to see that RingCentral beat analysts’ revenue expectations pretty strongly this quarter. And we were also excited to see the really strong revenue growth. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 2.63% on the results and currently trades at $277.01 per share.
Should you invest in RingCentral 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 full report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.