Cloud-based communication services provider RingCentral (NYSE:RNG), which is one of our Top 20 Cloud Stocks for 2020, reported its fourth quarter results this week that blew past all market expectations, and its stock has soared to a record high post the announcement.
RingCentral’s fourth quarter revenues grew 34% over the year to $253 million, significantly ahead of the market’s forecast of $239.5 million. This was the first quarter that the company reported a billion dollar annual revenue run rate. EPS of $0.22 was also ahead of the Street’s estimates of $0.21.
By segment, software subscriptions revenue increased 33% to $229 million. Other revenues grew 40% to $23.5 million.
Among key metrics, Annualized Exit Monthly Recurring Subscriptions (ARR) grew 32% to $960 million with RingCentral Office ARR increasing 36% to $877 million and Mid-market and Enterprise ARR increased 59% to $479 million.
RingCentral ended the year with revenues growing 34% over the year to $903 million. GAAP net loss per share of ($0.64) was higher than previous year’s loss of ($0.33) per share due to higher share-based compensation, amortization of intangibles, and acquisition related spends. On an adjusted basis, it reported an EPS of $0.82, compared to $0.77 a year ago.
For the first quarter, RingCentral expects revenues of $257-$259 million with a non-GAAP EPS of $0.18-$0.19. The market was looking for revenues of $249.2 million with an EPS of $0.18. RingCentral expects to end 2020 with revenues of $1.125-$1.135 billion, again ahead of the Street’s forecast of $1.1 billion.
RingCentral’s Growing Partnerships
RingCentral continues to drive growth by building strategic partners. After its earlier tie-up with Avaya, it recently entered an expanded relationship with AT&T. As part of the agreement, AT&T will market a business communication product supported by RingCentral. Known as the AT&T Office@Hand agreement, the two players will bring mobile-first voice, video, online meetings, messaging, and team collaboration capabilities to organizations. The partnership will help RingCentral get access to the wide market supported by AT&T. Additionally, the two players will work together to develop global capabilities to deliver enhanced Unified Communications as a Service(UCaaS).
Earlier this week, RingCentral also announced its strategic system integrated partnership with Atos. Atos is a global leader in enabling enterprise digital transformation. As part of the agreement, Atos will add RingCentral as the preferred provider of UCaaS solutions. They will enter into a System Integrator relationship and will introduce a co-branded UCaaS solution that will become a critical part of Atos’ Digital Workplace client and partner offering. The tie-up will help RingCentral extend its presence into large enterprise accounts that are focusing on moving towards digital transformation initiatives.
This was the third strategic partnership that RingCentral has entered into in the recent past. The first one being its tie-up with Avaya last year that was focused on introducing a new joint solution, Avaya Cloud Office (ACO) by RingCentral.
I think SaaS companies like RingCentral also need to focus on exploring a PaaS strategy that can further expand their product ecosystem and help build a developer ecosystem and marketplace around it. As I mentioned in an earlier post, the beauty of the marketplace model lies in the leveraged multiplier effect of developers writing apps on their platform, selling to their customers through the marketplace, and paying platform/marketplace fees of ~30%. Companies like Salesforce and Atlassian have successfully delivered on this model.
The market is pleased with RingCentral’s collaborative approach to growth. Its stock is currently trading at $227.02 with a market capitalization of $19.5 billion. Earlier this week, it had touched a 52-week high of $233.81. It was trading at a 52-week low of $98.19 in February last year.
This segment is a part in the series : Cloud Stocks