RingCentral

We are discontinuing analyst coverage of RingCentral.

We will discontinue analyst coverage of RingCentral on or about Sept. 11. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Our fair value estimate for RingCentral is $45 per share, implying a 2026 enterprise value/sales multiple of 2 times.

We model a five-year compound annual growth rate, or CAGR, of 4% through 2030. We expect this growth to result from secular shifts to cloud-based unified solutions, leading to faster adoption of cloud telephony and communication products, higher seat penetration, and AI adoption, offset by competitive pressure and AI dislocation on contact center per-seat models. RingCentral has formed strategic partnerships with legacy PBX vendors and system-integrators that have resulted in exclusive access to an install base of over 210 million seats. RingCentral has penetrated less than 10 million seats thus far, as the cloud migration for telephony remains in the early innings. We expect that as businesses increasingly adopt a work-from-anywhere structure, and a more mobile workforce requires device-agnostic flexible business communications, RingCentral’s UCaaS seats should experience some growth. RingCentral’s unique go-to-market strategy combined with a best-in-class platform should enable the firm to take its fair share of the sizable market opportunity.

RingCentral should benefit from operating leverage, and we expect GAAP operating margin to expand from 5% in 2025 (actual) to the midteens area in 2030. Management’s target is 20% by 2028 or 2029, which we are clearly below given concerns around competition and AI. We believe RingCentral should benefit from scale, with leverage on all expense lines but most apparent on sales and marketing over time. Given competition from a wide variety of providers, we believe long-term GAAP margins will be limited to approximately 20%, which skews toward the lower end of our long-run expectations for software companies.

We assign RingCentral a no-moat rating. Although we believe the company benefits from high customer switching costs among its existing customer base, and RingCentral is one of several leaders in the UCaaS space today, we think the company faces intensifying competition for new customer wins. RingCentral has generated uneven returns on invested capital in recent years, and the intense competitive landscape makes us cautious about whether RingCentral can generate material excess returns on capital in the future. If RingCentral is able to effectively fend off competitors, continue to win new customers at a healthy rate, and further scale operations in the coming years, we could see the company eventually earning a narrow moat rating.

In our view, switching costs for software are often driven by several factors. The more critical the function and the more touch points across an organization a software vendor has, the higher the switching costs. There is also the direct time and expense of implementing a new software package for the customer while maintaining the existing platform and retraining employees on a new system. Additionally, there is operational risk of changing software vendors, including business process re-engineering, loss of data during the changeover, and overall project execution. A major implementation is likely to involve a system integrator and can take in excess of a year in bad cases. Lastly, lost productivity is likely to be an issue as customers move up a learning curve on the new system, along with the distraction of users involved in the function where the change is occurring.

Retention metrics typically help inform investors on both the presence and the durability of a moat. These come in two flavors: gross, which describes what percentage of the customer base remains customers after a given period, and net, which highlights what percentage of customer spending is retained by the software provider after a given period. RingCentral’s monthly net retention has held at 100% or higher since the end of covid, where it had previously spiked. Based on an estimated revenue mix of 40% enterprise, 20% midmarket, and 40% small business, we view retention as adequate. Further, we think the company’s customer retention for enterprise users is in the 95% area, while retention for SMB users is likely closer to 80%. Software firms regularly see lower retention rates for small-business users than for enterprise customers, so retention is weighed down by a large proportion of small-business customers within the company’s mix.

RingCentral provides a cloud-based communications platform that includes solutions for telephony, video meetings, collaboration, and contact centers. The company’s main product is RingCentral MVP, a unified communications as a service, or UCaaS, platform including messaging, video meetings, and the core cloud phone system. The company’s other significant offering is a customer experience and engagement platform, including a cloud-based contact center as a service, or CCaaS. RingCentral also provides a stand-alone video meetings solution and webinar software.

The core RingEX solution is a substantial upgrade to a traditional legacy PBX solution and includes unique phone numbers, toll-free numbers, extensions, presence and head-up display, mobile apps, call delegation, call screening, call forwarding, call flip, call park, intercom, paging, shared lines, fax, voicemail-to-email, voicemail-to-text, visual voicemail, and more. The portfolio has grown over time to add new features, include a contact center solution in RingCX, and introduce new AI solutions. This expansion has allowed the company to move upstream and serve enterprise customers. Pricing typically starts at $30 per seat per month, but promotional pricing, annual billing elections, and the number of seats can affect the base rate.

To help make the firm more attractive to enterprise customers, RingCentral has embraced its developer community, well over 50,000 strong, and provides a variety of internally developed integrations with other popular applications. Software developers can also build their own customized connectors and integrations with the help of RingCentral's APIs. Enhancing the ability of users to customize software to best suit their complex and unique workflows and allowing for smooth application handshakes is a hallmark of modern software. We think over time the combination of the developer community, internally developed integrations, APIs, and externally developed applications available on RingCentral’s app exchange could support the emergence of a moat source based on network effects.

We estimate the market to be approximately 400 million phone seats and that conversion from legacy to software-based seats is in the early stages. The savings are real, but the impetus for users to switch to full software communications has been low. While RingCentral was the pioneer in the space, new entrants Zoom and Microsoft have permanently altered the competitive landscape. Further, Cisco has a widely adopted platform, while Twilio, Slack, and numerous other alternatives keep us cautious on the space in general.

RingCentral has inked partnerships with a variety of legacy PBX and telecommunication service providers to deliver co-branded UCaaS solutions to approximately half of the 400 million on-premises phone seats.

The market for telephony is substantial, serving more than 400 million on-premises seats. The covid-19 lockdowns demonstrated the need for flexible UCaaS systems, which have significant benefits over traditional solutions.

RingCentral has been a leader in communication software for a decade and is well positioned in both its core UCaaS market and the CCaaS market.

We see significant competition from software giants like Microsoft, emerging threats like Zoom, well-positioned incumbents like Cisco, legacy providers like Avaya, and service providers like Verizon.

While AI can be an opportunity, it also can represent a risk, which is particularly relevant for contact center software, where seat pressure could be meaningful if agentic AI takes off.

RingCentral has significant SMB exposure, which we view as revenue that is less sticky and more volatile.