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8x8 Inc . (NYSE:NASDAQ:EGHT), a provider of cloud-based communication and customer experience solutions with a market capitalization of $410 million, is navigating a challenging macroeconomic environment while focusing on long-term profitability and strategic initiatives. The company's stock performance, which has shown remarkable strength with an 84% gain over the past six months according to InvestingPro data, and future prospects are shaped by a combination of internal strategies and external market forces.
Financial Performance and Outlook
8x8 has faced headwinds in recent quarters, particularly due to foreign exchange (FX) impacts on reported revenue and growth, with revenue declining 2.23% in the last twelve months. For the third quarter of fiscal year 2025, analysts noted that FX challenges had an optical impact on the company's financial results. Despite these challenges, the company's underlying strategy is viewed as sound and aimed at long-term improvement, supported by strong free cash flow yield of 17% according to InvestingPro analysis.
Earnings per share (EPS) estimates for 8x8 have shown a positive trajectory. For fiscal year 2025 (FY1), EPS is estimated at $0.36, with projections increasing to $0.43 for fiscal year 2026 (FY2). This upward trend in EPS estimates suggests potential improvement in the company's profitability over the next two years.
However, the company has provided a more conservative revenue guide for FY25 due to current macroeconomic conditions. Management is focusing on the long-term outlook of the company's profitability and revenue base, despite near-term revenue uncertainty and a tougher macroeconomic environment.
Strategic Initiatives
8x8's strategic focus on customer experience (CX) has been a key driver of its recent business decisions. The company has been executing a CX-focused strategy, which analysts believe may position it well for future growth. This approach aligns with broader industry trends emphasizing the importance of customer-centric business models in the technology sector.
The company has also seen positive contributions from its Contact Center as a Service (CCaaS) and Communications Platform as a Service (CPaaS) offerings. These services have been instrumental in driving revenue stabilization efforts and are likely to play a crucial role in 8x8's future growth strategy.
Market Position and Industry Outlook
8x8 operates in a competitive technology sector, particularly within the cloud communications and customer experience solutions market. With a beta of 1.67 and notably volatile stock movements, the company exhibits higher sensitivity to market conditions than its peers. InvestingPro analysis reveals that while the company isn't currently profitable, analysts expect it to achieve profitability this fiscal year, with 4 analysts recently revising their earnings estimates upward.
Analysts maintain a positive industry view for the technology sector, which could provide tailwinds for companies like 8x8. This optimistic outlook suggests that there may be favorable conditions within the broader technology landscape that could benefit the company's growth prospects.
Future Prospects
Looking ahead, 8x8's future prospects are tied to its ability to execute its customer experience-focused strategy and capitalize on the growing demand for cloud-based communication solutions. According to InvestingPro's Fair Value analysis, the stock appears undervalued at current levels, suggesting potential upside for investors. The company's efforts to stabilize revenues and focus on long-term profitability, supported by a healthy current ratio of 1.24, indicate a strategic approach to navigating current market challenges. Get access to over 30 additional key metrics and insights for EGHT with an InvestingPro subscription.
The slight increases in analyst price targets over the past year reflect cautious optimism about the company's future performance. However, the "Equal Weight" ratings assigned by analysts suggest expectations of performance in line with the sector or overall market, rather than significant outperformance in the near term.
Bear Case
How might ongoing FX headwinds impact 8x8's financial performance?
Foreign exchange headwinds have already had a noticeable impact on 8x8's reported revenue and growth, particularly in the third quarter of fiscal year 2025. If these FX challenges persist, they could continue to negatively affect the company's financial results in several ways:
1. Revenue reporting: Unfavorable currency exchange rates can lead to lower reported revenues when foreign earnings are converted to USD, potentially masking underlying business growth.
2. Profit margins: FX volatility can increase the cost of international operations and impact profit margins, especially if the company has not effectively hedged against currency fluctuations.
3. Competitive pricing: In markets where 8x8 competes with local providers, FX headwinds may force the company to adjust pricing, potentially affecting market share or profitability.
4. Investment decisions: Prolonged FX challenges could influence the company's international expansion plans or investment in foreign markets, potentially limiting growth opportunities.
What challenges does 8x8 face in a competitive technology sector?
8x8 operates in a highly competitive cloud communications and customer experience solutions market, which presents several challenges:
1. Market saturation: The cloud communications sector is becoming increasingly crowded, with both established players and new entrants vying for market share.
2. Technological innovation: Rapid advancements in AI, machine learning, and other technologies require continuous investment in R&D to remain competitive.
3. Price pressure: Intense competition can lead to pricing pressures, potentially impacting profit margins as companies strive to offer competitive rates.
4. Customer acquisition and retention: In a crowded market, attracting and retaining customers becomes more challenging and potentially more expensive.
5. Differentiation: Standing out in a field of similar offerings requires significant investment in product development, marketing, and customer service.
6. Scaling operations: As 8x8 seeks to grow, it may face challenges in scaling its operations efficiently while maintaining quality and customer satisfaction.
Bull Case
How could 8x8's focus on customer experience drive future growth?
8x8's strategic emphasis on customer experience (CX) could be a significant driver of future growth for several reasons:
1. Market demand: As businesses increasingly prioritize customer satisfaction, demand for advanced CX solutions is likely to grow, potentially expanding 8x8's market opportunity.
2. Competitive differentiation: A strong CX offering can set 8x8 apart from competitors, potentially leading to increased market share and customer loyalty.
3. Upselling opportunities: By providing superior CX solutions, 8x8 may be able to upsell existing customers to more comprehensive or advanced service packages.
4. Industry partnerships: A reputation for excellent CX could lead to valuable partnerships with other technology providers, expanding 8x8's reach and capabilities.
5. Customer retention: Strong CX offerings can improve client satisfaction and reduce churn, leading to more stable recurring revenue streams.
6. Positive word-of-mouth: Satisfied customers are more likely to recommend 8x8's services, potentially reducing customer acquisition costs and driving organic growth.
What potential does 8x8 have for market expansion through its CCaaS and CPaaS offerings?
8x8's Contact Center as a Service (CCaaS) and Communications Platform as a Service (CPaaS) offerings present significant potential for market expansion:
1. Growing market: The global CCaaS and CPaaS markets are expanding rapidly as businesses seek to improve customer communications and integrate communication capabilities into their applications.
2. Cross-selling opportunities: 8x8 can leverage its existing customer base to introduce these services, potentially increasing revenue per customer.
3. Vertical specialization: By tailoring CCaaS and CPaaS solutions to specific industries (e.g., healthcare, finance), 8x8 could capture market share in high-value sectors.
4. International expansion: These cloud-based services can be easily deployed globally, allowing 8x8 to enter new geographic markets with relatively low infrastructure costs.
5. API economy: The rise of the API economy presents opportunities for 8x8 to integrate its services into a wide range of applications and platforms, expanding its reach.
6. Emerging use cases: As new communication technologies emerge (e.g., IoT, AR/VR), 8x8's CCaaS and CPaaS offerings could be adapted to support these innovations, opening new market segments.
SWOT Analysis
Strengths:
- Strong focus on customer experience (CX) strategy
- Positive contributions from CCaaS and CPaaS offerings
- Increasing EPS estimates indicating potential profitability improvement
Weaknesses:
- Vulnerability to FX headwinds impacting reported financials
- Near-term revenue uncertainty due to macroeconomic challenges
- Conservative revenue guidance for FY25
Opportunities:
- Positive industry outlook for the technology sector
- Potential for market expansion through CCaaS and CPaaS services
- Growing demand for cloud-based communication solutions
Threats:
- Intense competition in the cloud communications market
- Ongoing macroeconomic challenges affecting business performance
- Potential for continued FX volatility impacting financial results
Analysts Targets
- Barclays (LON:BARC) Capital Inc. (BCI, US): USD 3.00 (February 5th, 2025)
- Barclays Capital Inc. (BCI, US): USD 2.50 (November 5th, 2024)
- Barclays Capital Inc. (BCI, US): USD 2.00 (August 9th, 2024)
This analysis is based on information available up to February 17, 2025, and reflects the most recent analyst reports and market data provided.
InvestingPro: Smarter Decisions, Better Returns
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