RingCentral Analysts Bullish On Company's Cloud Opportunity

Global enterprise cloud communication company RingCentral Inc RNG reported first-quarter results Monday that prompted three Street analysts to lift their price targets for the stock. 

The Analysts

Baird Equity Research's William Power maintained an Outperform rating on RingCentral with a price target lifted from $120 to $135.

Guggenheim Partners' Nandan Amladi maintained at Buy with a price target lifted from $125 to $140.

SunTrust Robinson Humphrey's Terry Tillman maintained at Buy with a price target lifted from $120 to $140.

Baird: Shift To Cloud Is Just Beginning 

RingCentral reported a "strong" first quarter highlighted by 33.4-percent year-over-year growth in software subscription revenue to $182.7 million, Power said in a Tuesday note. 

During the quarter, the company showed 95-percent growth in enterprise annual recurring revenue to $200 million; channel ARR grew 75 percent to $203 million; and total ARR grew 32 percent.

RingCentral also confirmed a new 45,000-seat deal with a U.K.-based retailer on top of other wins across multiple sectors including education, health care and dining, the analyst said. 

Overall, the industrywide shift toward cloud communication platforms is in the early stages, and RingCentral continues to hold a leadership position, according to Baird. 

Guggenheim: What To Like, What To Watch

RingCentral deserves credit for standing out in the cloud-based enterprise communications sector by making the following moves, Amladi said:

• Building out the channel.
• Moving upmarket.
• Expanding to international markets.

The first two factors now account for over half of the company's ARR, and international partners should become a notable driver of growth after RingCentral confirmed the large win in the U.K. and another in France, the analyst said. 

On the other hand, RingCentral's international expansion poses some concerns investors should monitor, Amladi said. Local telecom regulations are often more complicated and expensive to manage, and international channel partners typically bring more complexity, he said.

SunTrust: $1-Billion Business In Sight

RingCentral's management lifted its 2019 revenue guidance range to $862-$866 million, which implies a growth rate of 28-29 percent, Tillman said in a Monday note.

The analyst is projecting 2020 revenue of $1.07 billion. 

RingCentral has several catalysts that could drive upside to 2019 expectations, including the ongoing international expansion and traction within the enterprise market, while a channel partner network can drive sales, the analyst said. The vertical market selling is also a newer catalyst that could result in strong enterprise sales, he said. 

If the multiple catalysts play out, RingCentral can outperform expectations with 30-percent-plus top-line growth that can be sustained for several years ahead, according to SunTrust. 

Price Action

RingCentral shares were down 2.4 percent at $118.15 at the close Tuesday. 

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Photo courtesy of RingCentral.