What happened
Shares of cloud communications company RingCentral (RNG +0.79%) were up 27% today as of 12:25 p.m. EST. The reason is an exceptional third-quarter 2021 update. The company's total revenue was up 37% year over year to $415 million, and adjusted earnings per share were up 38% to $0.36.
So what
Though effects of the pandemic are beginning to ease, software-based messaging, phone, and video services remain in growth mode as they enable remote work and help organizations save on cost compared to traditional telecom services. RingCentral is a leader in unified communications as a service (UCaaS), battling with Microsoft for the top spot in Gartner's rankings for leading UCaaS providers.
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The company also offers a contact center solution for larger enterprises, a service that fellow cloud company Five9 specializes in, and a service that Zoom Video Communications is trying to make headway in after its scrapped acquisition of Five9 earlier this year. In spite of the competition, there's clearly plenty of growth to go around. But RingCentral is one of the largest independent UCaaS providers out there and isn't hurting for its smaller peers nipping at its heels.
Now what
RingCentral expects fourth-quarter revenue to advance another 30% year over year to about $434 million. Adjusted operating profit margin will be about 10.5%, slim for the software industry that can typically generate profits well into the 20% range and above. However, RingCentral is spending heavily on sales and marketing to take advantage of the global migration to flexible cloud-based communications. This is a grow-now, profit-later type of business.
Basically, that means this will continue to be a volatile stock. Shares have declined 22% so far in 2021 even after the big Q3 jump, after increasing an impressive 125% in 2020 during the early stages of the pandemic. Nevertheless, if RingCentral can continue to expand its customer base at a rapid pace, investors in the company should be just fine long-term.
