Partnerships Ring In Growth For RingCentral

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According to a Grand View Research market report, the global unified Communication as a Service market valued at $31.52 billion in 2019 is expected to grow at 23.5% from 2020 to 2027. Leading player RingCentral (NYSE:RNG) is benefitting from the current COVID-induced work from home conditions and reaping the benefits of strategic partnerships that it had entered into earlier.

RingCentral’s Financials

RingCentral’s third quarter revenues grew 30% over the year to $303.62 million, significantly ahead of the market’s forecast of $287.35 million. Non-GAAP net income per diluted share was $0.26, ahead of the Street’s estimates of $0.24.

By segment, software subscriptions revenue increased 33% to $280 million. Other revenues grew 16% to $21.8 million.

Among key metrics, Annualized Exit Monthly Recurring Subscriptions (ARR) grew 34% to$1.2 billion. RingCentral Office ARR increased 36% to $1.1 billion. Mid-market and Enterprise ARR, defined as customers with $25,000 or more in ARR, increased 49% to $633 million. Enterprise ARR, defined as customers with $100,000 or more in ARR, increased 55% to $401 million. Channel ARR increased 59% to $419 million.

For the fourth quarter, RingCentral expects revenues of $315-$318 million, representing an annual growth of 25% to 26%. It expects subscription revenues of $290.5-$292.5 million, representing annual growth of 27% to 28%. Non-GAAP EPS is expected to be $0.26-$0.27. For the full year, it expects revenues of $1.164-$1.167 billion, representing an annual growth of 29%. It raised its guidance for subscription revenues to $1.07-$1.072 billion, representing an annual growth of 28%. Non-GAAP EPS is expected to be $0.96.

RingCentral’s New Offerings

During the quarter, RingCentral released over 70 new features for its video products. These features include additional security controls, waiting rooms, film strip viewing mode, in-meeting device switching, network quality indicators, and dark mode. It also enhanced its open platform with fully integrated high-volume SMS capabilities, enabling customers to use its platform for SMS order capabilities and appointment reminders, without needing to use outside CPaaS solutions.

Besides product growth, RingCentral also announced a partnership with Alcatel-Lucent Enterprise to introduce a new solution – Rainbow Office. Rainbow Office is a solution made exclusively for Alcatel-Lucent Enterprise. Together, the two companies will develop programs allowing them to lead cloud communications services in the enterprise market. As part of the partnership, RingCentral will be able to offer Alcatel-Lucent with more technology-leading cloud solutions, allowing them to cover their business needs. The partnership will also allow Alcatel-Lucent to speed up the development and transformation of RingCentral’s cloud business, allowing it to expand its presence in cloud solutions in Europe.

RingCentral’s partnerships are beginning to show significant contributions to its growth. Prior to the recent tie-up with Alcatel-Lucent, RingCentral had strategic partnerships with Avaya, Atos, AT&T, and BT. During the last quarter, more than half of its upmarket new business came from the Avaya partnership. RingCentral’s upmarket customer segment boasts an average deal size of over 100 users. Avaya continues to deliver a robust pipeline growth with some of the larger wins coming from targeted verticals like health care and education. Earlier this year, RingCentral had entered into a similar agreement with Atos that helped it land an 8-figure TCV win in the first month of launch. Similarly, its partnership with AT&T has seen the new business grow in triple digits over the year.

While partnerships are clearly driving good results for RingCentral, I would like to see more details on other relevant deal-win metrics from these partnerships such as average deal size, win rate, and other relevant metrics.

Its stock is currently trading at $288.17 with a market capitalization of $25.8 billion. It touched a 52-week high of $317.84 in August. It was trading at a 52-week low of $134.85 in March.

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