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On Friday, Needham, a financial services firm, continued its coverage of RingCentral (NYSE:RNG) shares with a Buy rating and a steady price target of $36.00. Currently trading at $26.67, the stock has attracted a moderate buy consensus from analysts, with price targets ranging from $22 to $55. The coverage transition to Joshua Reilly, CFA, comes with an optimistic outlook on the company’s market position and future prospects. According to InvestingPro analysis, RingCentral appears undervalued based on its Fair Value metrics.
RingCentral, a provider of unified communications as a service (UCaaS), is seen as having a solid foothold in the voice communication market, generating $2.4 billion in revenue over the last twelve months with a robust gross margin of 71%. The firm is also developing new AI-based products aimed at the small and medium-sized business (SMB) sector, which has been identified as an area with the highest growth rate for the company.
The analyst highlighted RingCentral’s ongoing financial strategies, including efforts to increase free cash flow (FCF) margins, reduce debt, and lower net leverage to 2x or less. These measures are expected to attract a higher valuation multiple for the company’s shares. InvestingPro data shows the company’s strong free cash flow yield and reveals eight additional key financial insights available to subscribers.
In line with management’s guidance, the introduction of new AI products is anticipated to generate over $100 million in annual recurring revenue (ARR) by the end of fiscal year 2025. This innovation is projected to support a 7.3% growth rate in overall ARR for the first quarter of 2025.
Needham’s analysis suggests that RingCentral’s combination of growth and profitability improvements, along with decreasing financial leverage, positions the company for strong share performance in the second half of 2025. The firm’s steady execution is seen as a key driver for potential gains in the stock’s value.
In other recent news, RingCentral Inc. reported its financial results for the first quarter of 2025, surpassing analyst expectations. The company achieved earnings per share (EPS) of $1.00, exceeding the forecasted $0.96, while revenue reached $612 million, slightly above the anticipated $610.42 million. Subscription revenue grew by 6%, contributing to a total revenue increase of 5% year-over-year. RingCentral also reported a record quarterly free cash flow of $130 million, marking a 70% increase from the previous year. The company continues to innovate with the launch of new AI-driven products, which have shown promising early adoption rates. Analysts from firms like Aragon Research and ISG have recognized RingCentral’s AI-powered solutions, highlighting their ease of use and integration capabilities. Looking ahead, RingCentral projects full-year subscription revenue growth of 5-7% and aims for a non-GAAP operating margin of approximately 22.5%. The company is also targeting $100 million in Annual Recurring Revenue from new products by the end of 2025, emphasizing its focus on AI and innovation.
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