RingCentral Stock Gains on 'Better Than Feared' Results

© Reuters. RingCentral (RNG) Stock Gains on 'Better Than Feared' Results

By Senad Karaahmetovic

Shares of RingCentral (NYSE:RNG) are up almost 8% in premarket trading Wednesday after the company raised its FY EPS guidance, topping consensus estimates.

RNG reported Q2 adjusted EPS of 45c, up from 32c in the year-ago period and above the consensus estimates of 40c per share. Revenue came in at $486.9 million, up 28% YoY and above the analyst consensus of $479.2 million. Software subscription revenue stood at $463 million in the quarter, up 32% YoY.

The company reported a Q2 adjusted gross margin of 78.4%, above the analyst estimates of 78.1%. The adjusted operating margin stood at 11.3%, up from 10.2% in the year-ago quarter.

For the third quarter, RingCentral expects adjusted EPS in the range of 50c to 51c, topping the expected 48c per share. The company estimates Q3 revenue to range between $500 million to $504 million, missing the consensus projection of $509.3 million.

RNG anticipates software subscription revenue of $473.5 million to $476.5 million. The adjusted operating margin is expected to be at 12.5% in the third quarter.

For the full fiscal year, RingCentral expects adjusted EPS in the range of $1.91 to $1.95, up from the previous forecast of $1.83 to $1.87, above the estimates of $1.85 per share. The cloud-based business communications solutions provider still expects FY revenue to be in the range of $1.99 billion to $2.02 billion, compared to the analyst estimates of $2.01 billion.

Software subscription revenue for the full year is expected to be between $1.88 billion to $1.90 billion. The company estimates FY adjusted operating margin of 12%.

A Jefferies analyst said the market is likely to see results as better than feared. The analyst reiterated a Buy rating and a $65 per share price target.

A Morgan Stanley analyst added that RNG’s results show that the “health of UCaaS market is underestimated.”

“Faster profitability improvement, combined with derisked outlook, should act as a catalyst, but will still need more confidence in TAM expansion / growth opportunities for more sustained rerating,” the analyst said.