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RingCentral Earnings: Founder and CEO Is Stepping Down After Latest Solid Results

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RingCentral Inc Class A
(RNG)

No-moat RingCentral RNG had a busy day, reporting slight upside relative to our expectations on both the top and bottom lines, announcing a new CEO, and introducing several new products. While guidance was maintained for the year, the outlook was slightly lower than we anticipated for the third quarter. Given results and guidance, our model adjustments are minor, thus we maintain our fair value estimate of $51 per share. Shares remain undervalued as the stock has lagged the market this year, but we continue to prefer wide-moat stocks in our coverage.

RingCentral announced Tarek Robbiati will replace the only CEO it has ever known, effective Aug. 28. Robbiati has been on the board of directors since December 2022 and most recently served as CFO of Hewlett Packard Enterprise. Prior to that he held positions as the CFO of Sprint, and numerous other CFO and CEO roles. While we see no issues with Robbiati, we think investors will question the logic of not bringing in a CEO with software roots. Current CEO and founder Vlad Shmunis will remain as executive chairman and will focus on innovation and strategy. RingCentral also announced that COO, Mo Katibeh is stepping down but will remain in an advisory role with the firm. No immediate plans for his replacement were discussed.

Revenue growth was solid for the quarter but continues to decelerate as challenging macro conditions persist. Second-quarter revenue grew 11% year over year as reported to $539 million, compared with the high end of guidance at $537 million. Subscription revenue grew 11% year over year to $514 million while annual recurring revenue grew 12% to $2.219 billion. Upsell and seat expansion opportunities remain scarce. Management noted the company has approximately 6 million seats, which indicates it is adding approximately 250,000 users per quarter, compared with 300,000 to 400,000 during the lockdowns, by our estimates. Despite continued macro pressure, average revenue per user remains steady above $30.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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