Over the past six months, 8x8’s stock price fell to $1.94. Shareholders have lost 5.8% of their capital, which is disappointing considering the S&P 500 has climbed by 10.8%. This may have investors wondering how to approach the situation.
Is now the time to buy 8x8, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think 8x8 Will Underperform?
Despite the more favorable entry price, we don't have much confidence in 8x8. Here are three reasons you should be careful with EGHT and a stock we'd rather own.
1. Billings Hit a Plateau
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Over the last year, 8x8 failed to grow its billings, which came in at $185.5 million in the latest quarter. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect 8x8’s revenue to stall, close to its 8% annualized growth for the past five years. This projection doesn't excite us and implies its newer products and services will not accelerate its top-line performance yet.
3. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
8x8’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between 8x8’s products and its peers.
Final Judgment
8x8 falls short of our quality standards. After the recent drawdown, the stock trades at 0.4× forward price-to-sales (or $1.94 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward a top digital advertising platform riding the creator economy.
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