8x8 'An Early Leader' In Cloud Comm, Says Baird

Baird has started coverage of 8x8, Inc.

with a Neutral rating and $15 price target as high valuation keeps the brokerage on the sidelines despite the company's still-nascent UCaaS growth opportunity. 8x8 is a provider of UCaaS, or Unified Communications as a Service, which combines voice, video, presence, chatting and many other new and traditional communications features into one platform over the cloud. "We are positive on the UCaaS growth opportunity, which we believe remains early innings. Importantly, 8x8's network strength, global reach and management focus has enabled it to lead the mid-market push," analyst William Power wrote in a note. Market research suggests that 8x8's core products are addressing a $50 billion+ annual revenue opportunity, with single-digit Unified Communications as a Service (UCaaS) penetration today. "Cloud communications is in its infancy, with 8x8, RingCentral, Vonage and several others the early leaders. We believe the company's integrated product portfolio and broad geographic reach should continue to position it well over at least the next several years," Power noted. 8x8 grew revenue 26.4 percent in calendar year 2015, with forecast growth of 23.5 percent in 2016 and 17.2 percent in 2017. The company's mid-market and enterprise revenue grew 44 percent in the first quarter, and now represents 52 percent of total revenue versus 45 percent a year ago. "The increasing mid-market focus should result in lower churn, which should benefit overall profitability over time, though the per seat pricing is also generally less," Power highlighted. Baird sees revenue growth of 19.5 percent in the second quarter, with modest service margin expansion and continued growth in ARPU. The brokerage projects F2017 revenue of $250.9 million, YOY growth of 19.9 percent, with modest margin expansion and YOY growth of 17.6 percent in F2018. At the time of writing, shares of 8x8 were down 0.15 percent to $13.50.