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Bandwidth Shares Rise on Voxbone Buyout, Solid Q3 Prospects

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In a concerted effort to play a greater role in global enterprise cloud communications, Bandwidth Inc. (BAND - Free Report) recently inked a definitive agreement to acquire Voxbone for an enterprise value of €446 million ($527 million). The transaction is likely to be accretive to non-GAAP earnings post completion of the deal, subject to mandatory closing conditions and regulatory approvals. The news seemed to have hit the right investor chords as reflected by the resonance in share prices, with the stock gaining 5.3% to close at $187.53 as on Oct 12.

Headquartered in Brussels, Belgium, Voxbone is a leading Europe-based communications platform and IP voice network provider, serving customers in more than 60 countries that represent about 93% of global GDP. This communication as a service (CaaS) firm offers seamless communication services delivering carrier-grade calls from the cloud and quality coverage that can be integrated with any contact center, conferencing platform or voice application. It is trusted by more than 900 global enterprises, including leading companies like Uber Technologies, Inc. (UBER - Free Report) , Zoom Video Communications, Inc. (ZM - Free Report) and 8x8, Inc. (EGHT - Free Report) .

The transaction complements Bandwidth’s product portfolio and enables it to offer a unified software platform to better serve global customers. The integrated offering will facilitate firms to combine voice, video and text communications as part of their digital transition and help transform enterprise cloud communications for superior customer experience.

Bandwidth intends to fund the transaction, likely to be completed on Oct 31, 2020, with approximately €338 million in cash and €108 million in common stock. Voxbone is expected to generate $85 million in revenues in 2020, up 25% year over year, and will translate into incremental earnings and profitably for Bandwidth post completion of the deal.

The stock has gained a stellar 209.6% in the past year compared with an industry rally of 69.9%.

Notably, management also hinted that the third-quarter performance is likely to excel its earlier guidance with comprehensive suite of products and services that cater to the networking requirements of large-scale Internet companies and cloud service providers based in the United States. For the third quarter, Bandwidth expects revenues in the range of $76-$76.5 million. The Zacks Consensus Estimate for third-quarter revenues is pegged at $76 million. It is expected to incur adjusted loss of 3 cents per share to a loss of 1 cent per share, the consensus estimate being loss of 2 cents.

As a leading provider of a cloud-based communications platform, Bandwidth benefits from cost-effective operations. The company capitalizes on a variety of marketing channels to promote its products and services. This reinforces pricing flexibility and provides a significant competitive advantage to build a capital-efficient and customized networking infrastructure. Bandwidth follows a usage-based revenue model that enables it to simultaneously augment its top-line growth and increase subscriber base. Bandwidth generates majority of its revenues from the CPaaS segment operating in the United States. The company believes that its evolving portfolio and accretive customer base are the cornerstones of long-term growth across a diverse set of markets.

Equipped with a dynamic business model, the company has been keen on developing its international offerings. It is undertaking the necessary steps to pursue international expansion opportunities, thereby strengthening its enterprise customer base overseas. Bandwidth established two data centers in Frankfurt and London in 2019, and has been permitted to operate in 13 European countries, which includes 11 members of the European Union, the United Kingdom and Switzerland. With an aim to fortify its communications platform, acquisitions and strategic investments in businesses and technology are believed to be the preferred modes for enhancing profitability in the long run. The Voxbone buyout by this Zacks Rank #4 (Sell) stock is a positive step in this regard. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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