It's been a wild couple of years for cloud-computing-based communications. Software that enables chat, voice, and video capabilities via the internet was a high-growth affair before 2020, but demand skyrocketed as the world has grappled with the ongoing effects of the pandemic. And now the Omicron coronavirus variant has many companies on alert again. Hence, remote communication isn't going away anytime soon.
That has left the door open for companies like Zoom Video Communications (NASDAQ:ZM) and Twilio (NYSE:TWLO) to begin disrupting the status quo in telecom. It's a crowded field with many players focusing on different specialties, but it remains an in-demand niche of the cloud computing industry. Here's how the various players relate to one another, and which are the best buys for 2022.
CPaaS vs. UCaaS vs. CCaaS vs. plain-vanilla web conferencing
Though there is significant overlap in product type, it's common to hear various acronyms thrown around by participants in the cloud communications space. Specifically, CPaaS, UCaaS, and CCaaS are some of the major subscription service categories (designated by the "aaS," or "as a service," indicating a cloud-based service subscription). Here's what each acronym means and some of the stocks in each category.
You can think of Communications Platform as a Service, or CPaaS, as a type of software tool kit with which a company can build its own customized communications solution. Twilio is the leader in this space, but smaller outfit Bandwidth (NASDAQ:BAND) is also a notable mention. Legacy internet-based voice service Vonage Holdings (NASDAQ:VG) also has a CPaaS service, though this company is being acquired by Ericsson (NASDAQ:ERIC) for $6.2 billion to bolster the Swedish telecom equipment supplier's presence in modern software-based services. In addition, Microsoft (NASDAQ:MSFT) launched a CPaaS tool kit in late 2020 to build on its success with Teams.
Many of the greater cloud communications industry companies, including Zoom, are also customers of these CPaaS providers.
If CPaaS provides the building blocks for a customized communications experience, then UCaaS (Unified Communications as a Service) is a ready-to-go package for businesses. Delivered via the cloud, UCaaS is defined by tech researcher Gartner as a platform that enables phone, meetings, mobile, and messaging all in one place. Zoom quickly became a household name in this space, but Gartner actually names Microsoft Teams and RingCentral (NYSE:RNG) as leaders in UCaaS for enterprise use.
Similar to UCaaS is Contact Center as a Service (CCaaS). While UCaaS is designed for internal and general-use communications, CCaaS is specifically designed for businesses looking to streamline their customer service. Thus, some extra CCaaS features differentiate it from UCaaS, including contact analytics, inbound call routing, email and chat, and integration with customer relationship management software.
Microsoft Teams features integrations to make it a CCaaS option, and Zoom launched its own offering in this space as well after failing to acquire Five9 (NASDAQ:FIVN) this past summer. Besides Five9, Gartner also ranks Nice Systems (NASDAQ:NICE) as a leader in CCaaS. Twilio also has a CCaaS offering called Flex that has helped the company remain in hypergrowth mode.
4. Plain-vanilla meeting solutions
A basic meeting solution is just what it sounds like: a way to communicate in a group setting via the internet. The difference between this service type and UCaaS is that many of the business-friendly extra features in a full UCaaS platform are stripped out. Gartner has named Zoom the leader in this basic category, but Microsoft's Teams (as well as the company's older solution Skype -- remember that one?) and Cisco Webex also get top marks in this category.
The best buys for 2022
Collectively, cloud-based communications services are expected to be a double-digit growth industry through this decade. That makes a basket of these stocks worth buying in 2022 and beyond.
But which stocks are the best buys? I'm tossing out Microsoft and Cisco since neither tech giant is a pure play. But if you had to add only one of them, Microsoft gets the nod because of its enduring double-digit-percentage growth in sales and profitability. Cisco can't quite match Redmond's super-dependable success.
As for a more focused bet, Zoom and Twilio are the places to start. The two companies lead the industry in terms of annual revenue and growth. And they span multiple disciplines within the greater cloud communications industry: Zoom in UCaaS, basic meetings, and a new CCaaS offering; and Twilio as the CPaaS leader with a programmable CCaaS solution. In addition, both companies have ample net cash and short-term investment balances on hand.
Though not exactly leaders in the industry, RingCentral, Five9, and 8x8 also have a lot to offer. These companies provide a range of functionality for both small and large businesses, are growing rapidly, and have plenty of net cash and short-term investment balances on hand.
And there you have it, my top cloud communications stocks for 2022, ranked in order: Zoom, Twilio, RingCentral, Five9, and 8x8. If you invest, remember that this is still an emerging industry, so individual stocks can be highly volatile. But stay focused on the long-term potential as the cloud begins to disrupt the old telecom industry status quo.