What the Future Holds for 8x8

On Wednesday, 8x8 (NASDAQ: EGHT  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

8x8 is far from the only company using the power of the Internet to find cheaper ways to facilitate communications, but it's done a particularly good job of identifying the business clients that are most likely to produce the biggest profits over the long run. Let's take an early look at what's been happening with 8x8 over the past quarter and what we're likely to see in its report.

Stats on 8x8

Analyst EPS Estimate

$0.06

Change From Year-Ago EPS

100%

Revenue Estimate

$28.28 million

Change From Year-Ago Revenue

17%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Where will 8x8's earnings go this quarter?
Analysts haven't budged in their assessment of 8x8's earnings recently, keeping both their most-recent quarter and full-year fiscal 2014 estimates unchanged. But the stock has done fairly well, rising about 9% since mid-February.

One big challenge that investors in 8x8 face is the stock's lofty valuation. Back in January, when the company made its last quarterly announcement, 8x8's shares fell sharply, even though the company met estimates on sales and earnings. At more than 25 times forward earnings estimates, 8x8 simply doesn't have any margin for error and needs to bolster growth at an ever-increasing pace in order to justify its valuation.

Yet in part, 8x8's stock-price rise might well have to do with its appeal as a possible buyout candidate. As merger and acquisition activity rises in the networked-communications sector, 8x8's concentration on business customers makes it much more attractive than rivals Vonage (NYSE: VG  ) or MagicJack Vocal Tec (NASDAQ: CALL  ) , both of which have more exposure to the residential market. 8x8's success in convincing businesses to save money through Internet-based communications speaks to the beauty of its business strategy, and the company has done a good job of keeping its customers on board as well, with low churn rates.

One niche area that might become a hotbed of potential growth is open area-code availability. Vonage has been lobbying regulators to allow it and other telecoms to offer premium area codes to clients, believing that some customers might be willing to pay up for a phone number with a high-profile area code like the ones customarily seen in Manhattan, Los Angeles, or Washington, D.C. Again, though, neither MagicJack nor Vonage would likely benefit as much as 8x8 from such a move, as the value of area codes for business customers is arguably a lot higher than for residential ones.

In 8x8's quarterly report, watch for comments on its recent provision of services that comply with health-information privacy laws. The health-care information market should see impressive growth, and if 8x8 can distinguish itself with services that make complying with health-care laws easier, it could gain yet another valuable competitive edge over its rivals.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report, "3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Click here to add 8x8 to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2441298, ~/Articles/ArticleHandler.aspx, 10/24/2014 7:39:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement