Shares of 8x8 (NASDAQ:EGHT) soared as much as 14.9% higher on Friday, following the release of strong
In the third quarter, the cloud-based communications specialist saw sales rising 19% year over year to $75.6 million. Adjusted earnings stopped at $0.02 per share, down from $0.06 per share in the year-ago period. Both of these metrics exceeded the average analyst's projections. Operating cash flows landed at $8.2 million, down from $8.8 million in the third quarter of 2017.
Under unadjusted GAAP (generally accepted accounting principles) earnings, 8x8 took a one-time $70.8 million tax charge to consume the balance sheet's entire sum of deferred tax assets. In return, the company's effective tax rate will drop from 35% to 3%.
Management expects service revenues to accelerate in the upcoming 2019 fiscal year. By the end of fiscal 2019, the division's annual revenue growth should speed up from 20% to roughly 25%. Since service revenues make up 95% of the company's total quarterly sales, that's a significant upside for 8x8 and its investors.
The company is achieving these results by reorganizing a formerly monolithic business into separate departments aimed at enterprise and small business customers, respectively. Rather than fighting for product features and corporate support under a single umbrella, these very different market types now have dedicated resources and more specialized product ranges. That way, 8x8 is spending a little bit more on the research-and-development and management side of things, but that investment pays dividends on the top line.
Shares of 8x8 have now gained 45% over the last three months, and more than doubled in three years. It's not a cheap stock by traditional metrics, but you often pay a premium for explosive sales growth. That's what's going on here, and I like what 8x8 is doing to keep the good times rolling.