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RingCentral’s Winning Formula Involves Partnerships

Posted on Tuesday, Nov 19th 2019

Cloud-based communication services provider RingCentral (NYSE:RNG) has had a stellar year so far. Its stock has nearly doubled since the start of the year and the continuing partnerships don’t seem to be stopping it.

RingCentral’s Financials

For the third quarter of the year, RingCentral’s revenues grew 34% to $233.4 million, ahead of the market’s forecast of $221.3 million. EPS was $0.22, compared with the Street’s estimates of $0.19.

By segment, software subscriptions revenue increased 33% to $211 million. Other revenues grew 43% to $22.4 million.

Among key metrics, its annualized exit monthly recurring subscriptions (ARR) increased 31% to $881 million with RingCentral Office ARR growing 35% to $800 million. Mid-market and Enterprise ARR increased 61% to $426 million, Enterprise ARR grew 77% to $259 million and Channel ARR increased 63% to $263 million.

For the third quarter, RingCentral expects revenues of $238-$240 million with a non-GAAP EPS of $0.21. The market was looking for revenues of $237.37 million and an EPS of $0.21. RingCentral expects to end the current year with revenues of $888-$890 million and an EPS of $0.81.

RingCentral’s Growing Partnerships

RingCentral continues to deliver on its growth targets through several tie-ups. The biggest news on the front was its tie-up with Avaya. As part of the agreement, Avaya and RingCentral will introduce a new solution, Avaya Cloud Office (ACO) by RingCentral. It will be the exclusive public Unified Communications as a Service (UCaaS) solution marketed and sold by Avaya. As part of this agreement, both companies will invest in development and sales and marketing of Avaya Cloud Office. RingCentral has invested $500 million with Avaya in cash and stock as part of the deal.

The ACO will combine RingCentral’s UCaaS platform with Avaya’s technology, services, and migration capabilities and be available by the first quarter of calendar 2020. Together, the two companies will develop programs to leverage Avaya’s global sales and partner network, and to build automated technologies for seamless customer transition to RingCentral’s global UCaaS solution. It will enable Avaya’s customers to leverage their existing investments while reducing migration complexities and timeframes. The market is pleased with this partnership.

On-premise communication services such as Cisco have already positioned themselves on the cloud. For instance, Cisco acquired BroadSoft and has been developing its own UCaaS capabilities. Avaya has been trying to get its communication systems on the cloud, but has not had a lot of success. The ACO will help it get there. For RingCentral, the partnership gives it inroads into Avaya’s customer base, especially in the market outside US.

More recently, RingCentral also announced an extended tie-up with AT&T through the AT&T Office@Hand agreement. The agreement will bring mobile-first voice, video, online meetings, messaging, and team collaboration capabilities to businesses and vertical sectors globally through the RingCentral partnership. Additionally, the two companies will jointly develop capabilities and technologies to further integrate with AT&T’s network to improve overall customer experience.

The market is pleased with RingCentral. Its stock is currently trading at $170.19 with a market capitalization of $14.6 billion. It touched a 52-week high of $177.39 last month. It has climbed from a 52-week low of $64.41 in December last year.

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