8x8, (NYSE:EGHT) will release its first-quarter earnings results July 23rd, and investors should be delighted with the success of software-as-a-service, or SaaS, provider in the North American markets as the company pocketed several contracts to provide cloud-based solutions and services to distributed enterprise customers. In addition, 8x8 continues to expand its geographical footprints in the international markets, especially emerging economies, which should enable it to target growing small to medium sized organizations managing call center operations. Although, the company faces stiff competition from voice-over-Internet provider magicJack VocalTec (NASDAQ:CALL), 8x8 seems well positioned to benefit from growing demand of cloud-based products and services.
8x8's latest quarter results
8x8 reported mixed fourth-quarter earnings results as the company incurred a net loss of $0.02 per share regardless of an impressive 29% year-over-year increase in revenue to a record $35.8 million. Similar to other SaaS providers, the company has swiftly switched from its licensed-based model to generate higher recurring subscription revenue, which accounted for more than 39% of its channel and mid-market sales in the quarter.
Most importantly, 8x8 leverages strong pricing power in the cloud-based SaaS markets as it witnessed a significant growth in monthly service revenue due to increase in the number of subscribed services per enterprise customer. Fool writer Sean Williams notes that 8x8's customers are even less likely to switch to its competitors, which should enable it to overturn the stock decline over the past twelve months.
Here's why 8x8 could outperform the stock market?
In the recent years, 8x8 has aggressively penetrated into the channel and mid-market segment with its highly differentiated products, including cloud communication suites and contact center services. The company also completed the acquisition of a UK based VoIP communications provider Voicenet Solutions for $18.4 million last year, which has enabled it to expand its geographical reach in the U.K.
Meanwhile, 8x8 raised about $126 million through a secondary stock offering to fund the acquisition of Voicenet Solutions and support the expansion into mid-market customer base in Europe and Asia. Most recently, the company's U.K. division inked an agreement to provide cloud-computing support and services to the users of Crown Commercial Services G-Cloud 5 platform. Going-forward, 8x8 has ambitious plans to push its cloud-based services to the enterprise sector in the U.K.
8x8 is also poised to benefit from significant investments in sales and marketing activities to expand its subscriber base in the domestic market. According to Infonetics Research 2014 Scorecard results, the unified communications and collaboration services provider has distinguished itself as a market leader in the United States. 8x8 recently entered into strategic partnerships with Telecom Brokerage and MicroCorp to provide enterprise cloud communications services through their extensive channel network of agents and VARs to business customers around the world. The company should capitalize on Telecom Brokerage and MicroCorp broad technological expertise in high-quality business communication services amid rising demand of 8x8's cloud-based services.
On the other hand, 8x8 expanded its geographical reach with the launch of its services platform at a new data center facility in Hong Kong, which should enable it to engage more mid-market, multinational customers in Asia Pacific region.
Quite recently, the company also had a number of contract wins for 8x8 industry leading cloud-based contact center solutions from KnoahSoft, Teleopti, and Zendesk, who plans to integrate their existing solutions with virtual contact center to enhance the overall product performance. In March, 8x8 also rolled out two new Virtual Office service enhancements , Branch Office and Switchboard Pro, to offer scalability to distributed enterprise customers and high call volume operations.
Moreover, 8x8 could produce substantial amount of revenue with the approvals of Virtual Office SuiteApp and the Virtual Contact Center SuiteApp for "Built for NetSuite" program. Fool writer Dan Caplinger notes that VoIP specialist magicJack, which allows people to make low-cost voice calls over the Internet, also boasts plan to offer its namesake magicJack device at more than 10,000 new retail outlets this year.
The bottom line
Although, high switching-costs prevent business customers from moving to cloud-based communication services, 8x8 sports a confluence of factors to present a potential upside opportunity. Meanwhile, 8x8 has $106 million in cash and cash equivalents with no debt on the balance sheet, which could enable it to strengthen its market position in the unified communications space. The company also has a lucrative opportunity to break out in next couple of years as 8x8 continues to expand geographical reach in both domestic and international markets.
Nishant Saini has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.