What happened
Shares of 8x8 (EGHT +2.59%) soared as much as 14.9% higher on Friday, following the release of strong
So what
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%.
Image source: Getty Images.
Now what
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.
