Can 8x8 Earnings Sustain 30% Growth?

8x8 (EGHT 0.92%) will release its quarterly report on Wednesday, but the stock has already given investors a head start on an anticipated celebration after the results. Yet with high expectations for 8x8 earnings to grow in the future, the company will need to keep working hard to find growth opportunities in the burgeoning Internet telecom market.

8x8 has recovered nicely from a brief pullback in January, but the stock remains potentially vulnerable to any sign of a slowdown. Like most high-growth stocks, 8x8's rich valuation demands that the company avoid nasty surprises in order to keep its share price aloft. How will 8x8 keep its business growing? 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.

Stats on 8x8

Source: Yahoo! Finance.

How can 8x8 earnings grow this quarter?
Analysts have reined in their 8x8 earnings expectations somewhat in recent months, keeping their estimates for the June quarter unchanged but cutting $0.02 per share from their calls for the full fiscal year. The stock, though, has soared, rising more than 20% since mid-April.

8x8 started off the quarter well, with its previous quarter's earnings report delivering results that made shareholders happy. Even though the company missed EPS estimates by $0.01, its revenue growth rebounded sharply, reassuring investors who'd been spooked by sluggish results from early this year.

So far, 8x8 has been able to stay ahead of consumer-oriented magicJack VocalTec (CALL) and Vonage (VG) by taking advantage of more lucrative opportunities in the business sector. For instance, in June, 8x8 demonstrated its Virtual Contract Center, giving small- and mid-sized business customers the chance to create their own call centers and encouraging new clients for its voice-over-Internet service. By contrast, competition between magicJack and Vonage has led to price cuts to rock-bottom levels at which profits are harder to come by.

8x8 isn't the only business-oriented company in the industry, though, as Cbeyond (NASDAQ: CBEY) also has a business focus. But for the much-larger Cbeyond, VoIP communication is just one aspect of a broader IT-services business, and by specializing, 8x8 has thus far been able to keep its niche intact.

In the 8x8 earnings report, watch for the company to discuss the implications of its newest contact-center patent award. With plans for an upgraded call center product later this year, the next leg up for 8x8 might come from technological innovations that help it look more favorable not just for cost-conscious customers but also for current clients of much larger telecom companies looking for higher quality. Those are the sorts of wins 8x8 will need to achieve in order to meet the 30% earnings growth targets that analysts have set for it.

Click here to add 8x8 to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.