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RingCentral (NYSE:RNG) Q1 Sales Beat Estimates But Full Year Guidance Underwhelms


Radek Strnad /
2022/05/09 4:12 pm EDT
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Office and call centre communications software provider RingCentral (NYSE:RNG) beat analyst expectations in Q1 FY2022 quarter, with revenue up 32.7% year on year to $467.6 million. On the other hand, guidance for the full year missed analyst expectations with revenues guided to $2 billion at the midpoint, or 1.07% below analyst estimates. RingCentral made a GAAP loss of $150.9 million, down on its loss of $186 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) Q1 FY2022 Highlights:

  • Revenue: $467.6 million vs analyst estimates of $458.3 million (2.02% beat)
  • EPS (non-GAAP): $0.39 vs analyst estimates of $0.34 (14% beat)
  • Revenue guidance for Q2 2022 is $477.5 million at the midpoint, roughly in line with what analysts were expecting
  • The company provided revenue guidance for the full year, at $2 billion at the midpoint, missing analyst estimates by 1.07%
  • Free cash flow of $38.5 million, up 39% from previous quarter
  • Gross Margin (GAAP): 66.7%, down from 72.4% same quarter last year

“We had a very strong start to the year, driven by continued success with large enterprise customers and ramping contributions from our partners,” 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 $352.3 million, to $467.6 million.

RingCentral Total Revenue

And unsurprisingly, this was another great quarter for RingCentral with revenue up 32.7% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $19.1 million in Q1, compared to $33.8 million in Q4 2021. 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 25.8% year on year to $477.5 million, slowing down from the 36.4% 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 24.3% over the next twelve months.

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 150% since the IPO last 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 66.7% in Q1.

RingCentral Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.66 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.

The company is up 4.56% on the results after being down over 10% during the regular hours and currently trades at $71.99 per share.Key Takeaways from RingCentral's Q1 Results

With a market capitalization of $7.21 billion RingCentral is among smaller companies, but its more than $301.9 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 excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that RingCentral's revenue guidance for the full year missed analyst's expectations and gross margin deteriorated. Overall, it seems to us that this was a complicated quarter for RingCentral. The company is up 4.56% on the results and currently trades at $71.99 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.