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Why Cloud Communications Stocks Soared in August

By Anders Bylund – Sep 6, 2018 at 3:24PM

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Vonage, 8x8, and RingCentral are steamrolling the market as a group.

What happened

Leading cloud communications specialists saw their share prices rise in August, according to data from S&P Global Market Intelligence.

RingCentral (RNG -6.81%) led the way with a 26.3% surge, followed by 8x8 (EGHT -7.69%) at 13.8% and Vonage Holdings (VG) scoring a 10.7% gain. All of these one-month returns crushed the broader market, as the S&P 500 benchmark notched just a 3% gain last month.

Young woman with mouth agape and staring at her phone, wide-eyed and wowed.

Image source: Getty Images.

So what

Vonage got the party started with a solid second-quarter earnings report on Aug. 1, meeting analysts earnings target while exceeding Wall Street's revenue estimate and guiding full-year revenue to levels just above the then-current analyst consensus. Analyst firm Oppenheimer quickly raised its price target on Vonage's stock from $14 to $16 per share, citing accelerated growth opportunities as Vonage shifts its business mix toward a more profitable model.

RingCentral followed suit the next week, beating analyst expectations across the board in its own second-quarter report. That report triggered a slew of price target boosts from Wall Street firms. In early September, RingCentral extended its cloud-based communications relationship with telecom giant AT&T (T -2.19%), tying Ma Bell's business-class calling services into RingCentral's internet phone platform.

8x8 reported its results near the end of July, leaving the smallest of these three rivals without an earnings-based boost of its own. In fact, 8x8 had a remarkably quiet month with no real news to speak of. Instead, the stock simply hitched a ride with RingCentral's and Vonage's gains.

Now what

All three of these tickers have been crushing the general market in 2018. Vonage's share prices have notched a 38% year-to-date return, trailing behind 8x8's 60% gains and RingCentral's staggering 92% lift.

Internet-based communications platforms are all the rage these days, and for good reason. Building a platform for sharing voice, video, and information around a cloud architecture is bound to save costs and improve functionality compared to traditional landline solutions. I'm only surprised that it took the business world this long to realize this simple concept and start taking action on it.

The cloud communications sector has been kind to my CAPS score since both Vonage and 8x8 rank among the 12 highest scores among my 143 CAPS picks. And this looks like the mere beginnings of a powerful growth sector for the long run.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$14.98 (-2.19%) $0.34
Vonage Holdings Stock Quote
Vonage Holdings
VG
8x8 Stock Quote
8x8
EGHT
$3.24 (-7.69%) $0.27
RingCentral Stock Quote
RingCentral
RNG
$39.40 (-6.81%) $-2.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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