Opportunity Is Calling for RingCentral

John Barrett: Last month, we initiated coverage of narrow-moat RingCentral with a fair value of $232 per share. We believe that RingCentral has plenty of opportunity ahead of it and that shares are attractively priced at current levels.

RingCentral is a best-in-class provider of unified communication as a service, or UCaaS. UCaaS provides users with an integrated software application that supports voice, video, and text communication. UCaaS solutions are easy to install and use and are replacing the phones on an employees' desks with a USB headset that plugs into the computer.

The UCaaS market is in the early stages of transitioning from on-premise to the cloud, so the company has a large growth opportunity ahead of it. The UCaaS market is currently around 10 million seats, with RingCentral having roughly 3 million, but the on-premise opportunity is somewhere around 400-500 million seats. We are expecting revenue growth of over 20% for RingCentral over the next decade as many enterprises convert to the cloud.

A key development from last month was the partnership RingCentral announced with Avaya, making RingCentral the exclusive provider of UCaaS solutions for Avaya. Avaya currently has over 100 million on-premise seats alone, so the conversion opportunity there is massive.

In summary, we think that RingCentral's software has customer-switching costs due to the importance of communication and the market is not fully appreciating how large the growth opportunity ahead of the company is.