Partners and Smaller Customers Help Drive RingCentral’s Good Results; FVE Still $48

No-moat RingCentral reported good third-quarter results that exceeded the high end of guidance and FactSet consensus for revenue and adjusted operating margin. Relative to our model, fourth-quarter guidance was ahead on margins and light on revenue. The firm also announced a restructuring that will reduce the headcount by 10%, which management expects to drive about 350 basis points of non-GAAP operating margin improvement in 2023. We are encouraged that average revenue per user remains steady and above $30 with unchanged pricing and win rates, even if macroeconomic conditions continue to erode and incremental pressure builds on sales cycle length and deal sizes. We continue to believe RingCentral is well positioned to capitalize on the continuing migration of legacy PBX phone systems to the cloud. We lowered our near-term revenue forecast, but raised our profitability estimates, which leaves our fair value estimate unchanged at $48 per share. While shares look attractive, we prefer wide-moat stocks under our coverage during this period of economic turmoil.