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RingCentral (RNG) Down 12% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for RingCentral (RNG - Free Report) . Shares have lost about 12% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is RingCentral due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

RingCentral Q1 Earnings Top Estimates, Revenues Up Y/Y

RingCentral reported first-quarter 2021 non-GAAP earnings of 27 cents per share, which surpassed the Zacks Consensus Estimate by 8% and surged 42.1% year over year.

Net revenues of $352 million also beat the consensus mark by 3.7% and jumped 31.7% year over year. The results reflect solid demand for RingCentral’s cloud-communication solutions.

Quarter Details

Software-subscription (92.3% of total revenues) revenues surged 33.8% year over year to $325.2 million.

Annualized Exit Monthly Recurring Subscriptions (“ARR”) increased 37% year over year to $1.4 billion.

RingCentral Office ARR (UCaaS + CCaaS) soared 40% year over year to $1.2 billion. Channel ARR soared 53% year over year to $505 million. Direct and Partners Office ARR increased 33% year over year to $817 million.

Other revenues (7.7% of total revenues) climbed 11.2% year over year to $27.1 million, reflecting higher adoption of RingCentral apps in the prevailing work-from-home wave.

First-quarter 2021 non-GAAP gross margin expanded 60 basis points (bps) from the year-ago quarter to 77.1%.

On a non-GAAP basis, research & development (R&D) expenses increased 43.6% year over year to $48 million. Sales and marketing expenses were up 28.9% to $153.5 million. General and administrative expenses rose 23.7% to $37.6 million in the reported quarter.

On a non-GAAP basis, operating income was $32.5 million, up 50.6% year over year. Non-GAAP operating margin expanded 120 bps from the year-ago quarter to 9.2%.

Balance Sheet

As of Mar 31, 2021 cash and cash equivalents were $463.1 million compared with $639.9 million as of Dec 31, 2020.

Key Q1 Developments

RingCentral, in collaboration with Avaya, announced the global expansion of Avaya Cloud Office by RingCentral in 13 countries. Moreover, with Atos RingCentral launched Unify Video by RingCentral in Europe.

Further, with Alcatel-Lucent Enterprise, RingCentral announced the launch of Rainbow Office, in eight European countries – including Austria, Belgium, France, Germany, Ireland, Italy, Spain, and the Netherlands.

RingCentral, in partnership with AT&T Business, introduced AT&T Office@Hand Wireless.

Guidance

For the second quarter of 2021, RingCentral expects revenues between $356.5 million and $359.5 million, indicating year-over-year growth of 29-30%.

Moreover, software-subscription revenues for the quarter are expected between $332 million and $334 million, indicating year-over-year growth of 29-30%.

Non-GAAP operating margin is expected to be in the 9.3% for the second quarter. Earnings are expected between 27 cents to 28 cents per share.

For 2021, RingCentral now expects revenues between $1.500 billion to $1.510 billion (up from previous guidance of $1.475-$1.490 billion), indicating year-over-year growth of 27% to 28%.

Further, software-subscription revenues for the year are expected between $1.388 billion and $1.396 billion, implying year-over-year growth of 28% to 29%.

Non-GAAP operating margin is expected between 10% and 10.1% for full-year 2021.

Earnings are expected between $1.24 and $1.27 per share compared with previous guidance of $1.20-$1.24 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, RingCentral has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, RingCentral has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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