Profitability Ramp Outweighs Revenue Deceleration for RingCentral; Fair Value Estimate Up to $51

No-moat RingCentral reported mixed fourth-quarter results that were toward the low end of guidance for revenue but in line with its profitability outlook. Relative to our expectations, guidance was ahead on margins and light on revenue. We are encouraged that average revenue per user remains steady and above $30 with unchanged pricing and win rates, even if macro conditions continue to drive longer sales cycles and smaller deal sizes. The extended partnership with Avaya should be better for RingCentral as it has minimum seat commitments and no up-front commissions. We are also relieved to see the company improve its capital allocation flexibility. We continue to believe that RingCentral is well positioned to capitalize on the continuing migration of legacy PBX phone systems to the cloud. We lowered our growth expectations but raised our profitability estimates, which actually drive our fair value estimate up to $51 per share, from $48 previously. While shares look attractive following the aftermarket selloff, we continue prefer wide-moat stocks under our coverage during this period of economic turmoil.