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Why Is RingCentral (RNG) Down 13.8% Since Last Earnings Report?

It has been about a month since the last earnings report for RingCentral (RNG). Shares have lost about 13.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

RingCentral Q4 Earnings Top Estimates, Revenues Up Y/Y

RingCentral reported fourth-quarter 2022 non-GAAP earnings of 60 cents per share, which surpassed the Zacks Consensus Estimate by 1.69% and jumped 53.8% year over year.

Net revenues of $524.7 million lagged the consensus mark by 0.69% but increased 17% year over year.

Quarter Details

Software subscription (95.6% of total revenues) revenues increased 19.4% year over year to $501.6 million. Other revenues (4.4% of total revenues) declined 18.2% year over year to $23.1 million.

Annualized Exit Monthly Recurring Subscriptions (“ARR”) increased 17% year over year to $2.10 billion. Mid-market and Enterprise ARR increased 20% year over year to $1.30 billion.

The fourth-quarter 2022 non-GAAP gross margin expanded 70 basis points (bps) from the year-ago quarter to 79.1%.

On a non-GAAP basis, research and development expenses increased 3.7% year over year to $64 million. Sales and marketing expenses were up 13.4% to $231.8 million. General and administrative expenses rose 20.3% to $45.6 million in the reported quarter.

On a non-GAAP basis, operating income was $73.4 million, up 55.3% year over year. The non-GAAP operating margin expanded 340 bps from the year-ago quarter to 14%.

Balance Sheet

As of Dec 31, 2022, cash and cash equivalents were $269.9 million compared with $305.4 million as of Sep 30, 2022.

RingCentral also announced that it entered a 5-year, $600-million credit facility, consisting of a $400-million Delayed Draw Term Loan A and a $200-million Revolver.

Guidance

For the first quarter of 2023, RingCentral expects revenues between $526 million and $530 million, indicating year-over-year growth of 12-13%.

Subscription revenues for the quarter are expected between $503 million and $505 million, indicating year-over-year growth of 14-15%.

The non-GAAP operating margin is expected to be 16.5% for the first quarter. Earnings are expected to be 69-70 cents per share.

For 2023, RingCentral expects revenues between $2.180 billion and $2.20 billion, indicating year-over-year growth of 10-11%.

Subscription revenues for the year are expected between $2.08 billion and $2.100 billion, implying year-over-year growth of 10-11%.

The non-GAAP operating margin is expected to be at least 18% for 2023.

Earnings are expected between $3.04 and $3.10 per share.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 56.45% due to these changes.

VGM Scores

Currently, RingCentral has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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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