Evercore ISI cuts RingCentral stock target to $35 from $37

On Friday, Evercore ISI adjusted its outlook on RingCentral shares (NYSE:RNG), reducing the price target from $37.00 to $35.00 while maintaining an In Line rating. The stock, currently trading at $30.77, has already fallen 8.8% in the past week, according to InvestingPro data. The firm’s analysts highlighted that RingCentral’s fourth-quarter results met expectations, but the company’s forecasts for the first quarter of 2025 and the full year are less promising, which is expected to put pressure on the stock. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, part of the coverage of 1,400+ US equities.

RingCentral’s recent earnings call did not offer new insights that might alter the prevailing narrative around the company’s stock. While the company achieved 9% revenue growth in the last twelve months, reaching $2.4 billion, analysts observed no immediate catalysts that could change the market’s sentiment. Despite RingCentral’s position as a market leader, analysts are skeptical about investors’ ability to justify a long-term value for a business in a commoditized and low-growth market, particularly given its high EV/EBITDA multiple of 22.84x.

The analyst report mentioned that RingCentral’s move into Contact Center as a Service (CCaaS) and AI initiatives are logical, but these sectors are highly competitive and fragmented. Larger entities with more resources dominate these areas, which poses a challenge for RingCentral. The ongoing narrative surrounding these challenges is not expected to improve in RingCentral’s favor in the near future.

Evercore ISI had previously indicated that it might need to revise its guidance for the calendar year 2025 below the current consensus due to potential disruptions from the end of the partnership with NICE. Even after accounting for foreign exchange headwinds, RingCentral’s initial guidance fell short of expectations. As the company moves away from reselling NICE products, analysts anticipate that average revenue per user (ARPU) and annual recurring revenue (ARR) may decline. This is similar to the situation Zoom (NASDAQ:ZM) faced a few years earlier when its partnership ended.

The report also touched on RingCentral’s trajectory towards profitability, which could lessen concerns about convertible debt overhang. According to InvestingPro data, while the company isn’t currently profitable, it maintains a healthy financial position with a "GOOD" overall health score and a strong gross profit margin of 70.7%. The company’s focus is on delivering operating leverage, improving free cash flow (projected to be around $500 million in 2025 with approximately 20% margins), and reducing stock-based compensation (SBC), which could eventually lead to a more favorable financial position. For deeper insights into RingCentral’s financial health and growth potential, investors can access the detailed Pro Research Report on InvestingPro.

In other recent news, RingCentral reported fourth-quarter earnings and revenue that exceeded analyst expectations. The company posted adjusted earnings per share of $0.98, slightly above the consensus estimate of $0.97, and revenue rose 8% year-over-year to $615 million, surpassing projections of $612.36 million. Despite these positive results, RingCentral’s first-quarter guidance disappointed investors, with projected adjusted EPS of $0.93-$0.97 falling short of the $1.01 consensus, and expected revenue of $607-612 million below the anticipated $627.4 million.

Goldman Sachs recently adjusted RingCentral’s stock price target to $36 from $38, maintaining a Neutral rating. This revision followed RingCentral’s fourth-quarter results, which included a slight subscription revenue beat. The company’s guidance for fiscal year 2025 suggests a subscription revenue growth of 5-7% and total revenue growth of 4-6%, with a full-year adjusted EPS projection of $4.13-$4.27, compared to the $4.22 consensus estimate.

RingCentral has achieved GAAP operating profitability for the first time and generated record operating cash flow of $483 million, or 20.1% of total revenue, in 2024. The company is also making strides in its transition to an AI-first, multi-product company, with its emerging products, including RingCX, reaching $50 million in annual recurring revenue in fiscal year 2024. Additionally, RingCentral announced the promotion of Kira Makagon to President and Chief Operating Officer.

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