8x8 (EGHT)

Cloud communications provider 8x8 (NASDAQ:EGHT) announced better-than-expected revenue in Q3 CY2025, with sales up 1.7% year on year to $184.1 million. The company expects next quarter’s revenue to be around $179.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.09 per share was 28.6% above analysts’ consensus estimates.

Company Overview

Named after its founding year (1987) with "8x8" representing binary code for communications, 8x8 (NASDAQ:EGHT) provides cloud-based contact center and unified communications solutions that enable businesses to manage customer interactions and internal communications through a single 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.

8x8 competes with other cloud communications providers such as RingCentral (NYSE:RNG), Zoom (NASDAQ:ZM), Vonage (acquired by Ericsson), Five9 (NASDAQ:FIVN), NICE (NASDAQ:NICE), Twilio (NYSE:TWLO), as well as legacy communications providers like Cisco (NASDAQ:CSCO), Avaya, and tech giants including Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, 8x8’s 8% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the software sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. 8x8’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.1% annually.

This quarter, 8x8 reported modest year-on-year revenue growth of 1.7% but beat Wall Street’s estimates by 3.1%. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.

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 $185.6 million in the latest quarter. This performance mirrored its total sales and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

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.

For software companies like 8x8, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

8x8’s gross margin is worse than the software industry average, giving it less room than its competitors to hire new talent that can expand its products and services. As you can see below, it averaged a 66.7% gross margin over the last year. Said differently, 8x8 had to pay a chunky $33.33 to its service providers for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. 8x8 has seen gross margins decline by 2.9 percentage points over the last 2 year, which is among the worst in the software space.

8x8’s gross profit margin came in at 64.8% this quarter, marking a 3.2 percentage point decrease from 68.1% in the same quarter last year. 8x8’s full-year margin has also been trending down over the past 12 months, decreasing by 1.6 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

8x8 has done a decent job managing its cost base over the last year. The company has produced an average operating margin of 2.1%, higher than the broader software sector.

Looking at the trend in its profitability, 8x8’s operating margin rose by 4.6 percentage points over the last two years, as its sales growth gave it operating leverage.

In Q3, 8x8 generated an operating margin profit margin of 2.9%, down 1.1 percentage points year on year. Since 8x8’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

8x8 has shown weak cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.4%, subpar for a software business.

8x8’s free cash flow clocked in at $4.59 million in Q3, equivalent to a 2.5% margin. The company’s cash profitability regressed as it was 2.1 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

8x8 reported $111 million of cash and $380.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $88.87 million of EBITDA over the last 12 months, we view 8x8’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $17.99 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly 8x8 blew past analysts’ billings expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 5.6% to $1.88 immediately following the results.

Updated: December 4, 2025 at 9:11 PM EST

Before making an investment decision, investors should account for 8x8’s business fundamentals and valuation in addition to what happened in the latest quarter.

8x8 falls short of our quality standards. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its operating margins are in line with the overall software sector, the downside is its ARR has disappointed and shows the company is having difficulty retaining customers and their spending. On top of that, its customer acquisition is less efficient than many comparable companies.

8x8’s price-to-sales ratio based on the next 12 months is 0.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $2.50 on the company (compared to the current share price of $2.04).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.