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Why Is RingCentral (RNG) Up 0.6% Since Last Earnings Report?

It has been about a month since the last earnings report for RingCentral (RNG). Shares have added about 0.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RingCentral due for a pullback? 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 catalysts.

RingCentral Q2 Earnings Top Estimates, Revenues Up Y/Y

RingCentral reported second-quarter 2021 non-GAAP earnings of 32 cents per share, which surpassed the Zacks Consensus Estimate by 14.29% and surged 33.3% year over year.

Net revenues of $379.3 million beat the consensus mark by 5.66% and jumped 36.4% year over year. The results reflect solid demand for RingCentral’s cloud communication solutions.

Quarterly Details

Software-subscription (92.6% of total revenues) revenues surged 36.6% year over year to $351.2 million.

Annualized Exit Monthly Recurring Subscriptions (“ARR”) increased 37% year over year to $1.5 billion.

RingCentral Office ARR (UCaaS + CCaaS) soared 41% year over year to $1.4 billion. Channel ARR soared 52% year over year to $571 million. Direct and Partners Office ARR increased 34% year over year to $860 million. Enterprise ARR surged 60% year over year to $583 million.

Other revenues (7.4% of total revenues) climbed 34% year over year to $28.1 million, reflecting higher adoption of RingCentral apps in the prevailing work-from-home wave.

Second-quarter 2021 non-GAAP gross margin expanded 80 basis points (bps) from the year-ago quarter to 77.4%.

On a non-GAAP basis, research & development (R&D) expenses increased 59.4% year over year to $53.8 million. Sales and marketing expenses were up 36.1% to $163.8 million. General and administrative expenses rose 24.2% to $37.2 million in the reported quarter.

On a non-GAAP basis, operating income was $38.8 million, up 34.6% year over year. Non-GAAP operating margin contracted 10 bps from the year-ago quarter to 10.2%.

Balance Sheet

As of Jun 30, 2021 cash and cash equivalents were $325.3 million compared with $463.1 million as of Mar 31, 2021.

Guidance

For the third quarter of 2021, RingCentral expects revenues between $390.5 million and $393.5 million, indicating year-over-year growth of 29-30%.

Moreover, software-subscription revenues for the quarter are expected between $363 million and $365 million, indicating year-over-year growth of 30-31%.

Non-GAAP operating margin is expected in the range of 10.2-10.3% for the third quarter. Earnings are expected between 33 cents to 34 cents per share.

For 2021, RingCentral now expects revenues between $1.539 billion to $1.545 billion (up from the previous guidance of $1.500-$1.510 billion), indicating year-over-year growth of 27% to 28%.

Further, software subscription revenues for the year are expected between $1.424 billion and $1.430 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 $1.28 and $1.30 per share compared with the previous guidance of $1.24-$1.27 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 11.94% due to these changes.

VGM Scores

At this time, RingCentral has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been 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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