RingCentral Growth Likely To Continue As AT&T Partnership 'Remains In Place'

William Blair sees the current pullback in RingCentral Inc RNG as an attractive buying opportunity as it expects the company to continue to grow its subscription revenue north of 25 percent for the next few years, with incremental margins and cash flows.

RingCentral, which provides cloud-based communication management system, continues to make headway with larger customers as it closed five seven-figure total contract value deals during the fourth quarter.

Related Link: The Market In 5 Minutes

“We feel there is room for multiple expansion given the large market opportunity, strong management team, multiple growth drivers, and market-leading position,” analyst Bhavan Suri wrote in a note.

The 28 percent growth in subscription revenue drove a fourth quarter beat for RingCentral, whose full year 2017 revenue outlook also came in above Street.

Notably, the company’s revenue guidance assumes no new business from its AT&T Inc. T channel, which accounts for 14 percent of total revenue. That said, Suri believes the agreement with AT&T remains in place and isn't expecting this revenue stream to dissipate completely.

“But, because of Collaborate, we view the discounting of unpredictable growth from AT&T as prudently conservative, and we believe the company will certainly continue adding net new subscribers as we expect AT&T to continue reselling RingCentral in 2017,” Suri elaborated.

The analyst reiterated his Outperform rating on the stock, saying that RingCentral would weather any potential stagnant growth from AT&T channel with its growing indirect business.

Further, Suri doesn't expect churn from existing customers brought on through the AT&T channel to be any different from normal churn for the company, which he estimates at 5 to 6 percent for large enterprises.

At last check, shares of RingCentral fell 2.73 percent to $23.15.