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On Friday, Goldman Sachs analyst Kash Rangan adjusted RingCentral’s (NYSE:RNG) price target, bringing it down to $36 from the previous $38, while maintaining a Neutral rating on the company’s shares. The revision came in response to RingCentral’s fourth-quarter results, which showed a slight subscription revenue beat above consensus and operational performance that was marginally better than expected. The stock, currently trading at $30.77, has experienced significant pressure with an 8.8% decline over the past week. According to InvestingPro analysis, RingCentral appears undervalued based on its Fair Value estimates, with analysts maintaining price targets ranging from $30 to $55.
RingCentral’s subscription revenue outperformed forecasts by 0.3%, a decrease from the 1.6% beat in the third quarter. Despite this, the company’s stock experienced a 2% drop in after-hours trading, which analysts believe is due to investor reactions to the lower-than-anticipated subscription revenue guidance for fiscal year 2025. The guidance indicated a 6% increase, which is below consensus, though it aligns with constant currency expectations at 7%. The company has maintained a solid gross profit margin of 70.7%, and InvestingPro data reveals strong financial health metrics, with an overall score rated as "GOOD" by the platform’s comprehensive analysis system. For deeper insights into RingCentral’s financial health and growth prospects, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
The company’s market performance has been a topic of discussion, with its initial subscription revenue guide falling between 6-8% on a constant currency basis. This has raised questions about the long-term market potential for cloud telephony and RingCentral’s capacity to maintain its growth rate. However, the report also highlighted several positive developments, including the company’s consistent ~20% market share in the Unified Communications market since 2022, which suggests that concerns about losing market share to competitors like Microsoft (NASDAQ:MSFT) and Zoom (NASDAQ:ZM) may be overstated.
Further positives from RingCentral’s financial results include the company’s progress on cost management, which has led to two consecutive quarters of GAAP profitability. The company is also targeting an additional 150 basis points in operating margin expansion for fiscal year 2025, which is expected to support stronger earnings and free cash flow generation, projected at $505 million for the year. The company’s current free cash flow yield stands at an impressive 16%, while analysts project positive earnings for the upcoming year, with an EPS forecast of $3.87 for FY2025.
Additionally, RingCentral is progressing in its transition to an AI-first, multi-product company. The company’s emerging products, led by RingCX, achieved $50 million in annual recurring revenue (ARR) in fiscal year 2024 and are on track to surpass $100 million in ARR in fiscal year 2025. Despite these operational and product advancements, Goldman Sachs remains on the sidelines, awaiting signs that these initiatives can lead to stable new business and growth. InvestingPro subscribers have access to additional insights through 8 more exclusive ProTips, including detailed analysis of the company’s management actions and valuation metrics, helping investors make more informed decisions about RingCentral’s growth potential.
In other recent news, RingCentral reported fourth-quarter earnings and revenue that exceeded analyst estimates. The company posted adjusted earnings per share of $0.98, slightly above the consensus estimate of $0.97, and revenue rose by 8% year-over-year to $615 million, surpassing projections of $612.36 million. Despite these positive results, RingCentral’s first-quarter guidance fell short of expectations, with projected adjusted EPS of $0.93-$0.97, below the $1.01 consensus, and revenue guidance of $607-612 million, missing the anticipated $627.4 million. For the full year 2024, RingCentral achieved GAAP operating profitability for the first time and generated record operating cash flow of $483 million, representing 20.1% of total revenue. Looking ahead, the company expects subscription revenue growth of 5-7% and total revenue growth of 4-6% for fiscal 2025, with a projected full-year adjusted EPS of $4.13-$4.27, compared to the $4.22 consensus estimate. Additionally, RingCentral announced the promotion of Kira Makagon to President and Chief Operating Officer. CEO Vlad Shmunis noted the growing momentum of the company’s new AI-powered products, including the RingCentral AI Receptionist.
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