On Wednesday, UBS increased its stock price target for RingCentral (NYSE:RNG), a leading provider of global enterprise cloud communications and collaboration solutions, to $40.00, up from the previous target of $37.00. The firm has maintained a Neutral rating on the stock.
RingCentral's first-quarter financial results for the fiscal year 2024 demonstrated a modest out performance in revenue, with subscription revenue growth of 9.5% year-over-year, which was slightly above the high end of the company’s guidance. The company surpassed expectations by $2.5 million and subsequently raised its full-year 2024 revenue guidance by $2 million.
The company also reported a notable operating margin of 20.7% for the first quarter, which was higher than the anticipated 19.5%. RingCentral confirmed its operating margin guidance of 21% for the full fiscal year 2024. Moreover, RingCentral secured a 40,000 seat deal, marking the largest unified communications as a service (UCaaS) win in the company's history.
UBS's revised stock price target of $40 reflects an enterprise value to unlevered free cash flow (EV/uFCF) multiple of 10 times the estimated calendar year 2025. The firm acknowledges the company's strong execution on profitability to date.
Nonetheless, UBS maintains a Neutral stance on the stock due to limited visibility into the company's growth outlook for future years. The firm notes that there has not been a discernible inflection in the adoption of RingCentral's newer offerings such as RingCX, RingSense, and Events. Market checks have indicated a softer demand for unified communications solutions and increased competition in the sector.
InvestingPro Insights
As RingCentral continues to navigate the competitive landscape of cloud communications, recent InvestingPro data and tips provide a nuanced perspective for investors considering the company's stock. The company's market capitalization stands at approximately $2.77 billion, reflecting its stature in the enterprise communication space.
Despite not being profitable over the last twelve months, management's aggressive share buybacks and high shareholder yield are noteworthy. These actions demonstrate a confidence in the company's future and a commitment to returning value to shareholders.
InvestingPro data highlights a revenue growth of 10.77% over the last twelve months as of Q1 2023, indicating a steady upward trajectory. The company's gross profit margin remains robust at 69.84%, underscoring its ability to maintain profitability at the core operational level.
Still, the high EBITDA valuation multiple suggests that investors are paying a premium for future growth expectations. Analysts predict that RingCentral will become profitable this year, which if realized, could provide a catalyst for the stock price.
For those seeking a deeper dive into RingCentral's financial health and future prospects, InvestingPro offers additional tips. With a total of 9 tips available, investors can gain a more comprehensive understanding of the company's performance and market position. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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