8x8 Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to 8x8 (EGHT 2.15%). The telecom has made a niche for itself by providing Internet-based voice and video communications specifically to business clients, and shares have soared throughout the past year on optimism about its model's success. Let's take an early look at what's been happening with 8x8 over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on 8x8

Source: Yahoo! Finance.

Will 8x8 connect investors to profits?
Analysts haven't budged in their estimates for 8x8's earnings all quarter, seeing the company's substantial growth continue. Investors are excited about 8x8's prospects, though, having bid up shares almost 25% since mid-October.

8x8's business of turning an Internet connection into a viable alternative to traditional voice telephone services doesn't get as much exposure as those of Vonage (VG), and magicJack VocalTec (CALL), as those latter two companies have focused on consumer-facing sales by tapping into the market of residential customers seeking to get rid of their landlines. Rather, 8x8 has keyed in on businesses in general and on the concept of unified communications specifically, allowing small and medium-sized businesses to get the same remote access and communications ability from anywhere around the world that larger companies have enjoyed for a while now.

8x8 has done a good job of convincing customers to commit to its services, with customer churn levels well below Vonage's. Moreover, last quarter, businesses that use 8x8 adopted more of the telecom provider's services, leading to a nearly 25% boost in average monthly revenue per customer. That loyalty can lead to word-of-mouth referrals, which are crucial for anyone trying to tap the small-business segment.

The biggest concern investors should have in the coming earnings report is whether the stock has gotten ahead of itself. With shares fetching nearly 30 times fiscal 2014 estimates, 8x8 will have to demonstrate its ability to keep growing at a strong pace. Be sure to look for signs that the recovering economy is leading to more sales for 8x8, but if the growth is there, then the stock has plenty of room to grow in the long run.

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