RingCentral Drives Both Profitability and Growth at Scale in Q2; Maintain $125 FVE

Narrow-moat RingCentral reported second-quarter results that exceeded both the high end of guidance and FactSet consensus for revenue and adjusted operating margin. We are encouraged that RingCentral maintained its full-year revenue guidance despite currency headwinds that are expected to continue to worsen, while adjusted operating margin guidance was bumped up slightly. Annual recurring revenue, or ARR, and pricing trends remain positive, and the demand environment appears healthy despite smaller deal sizes by larger customers in light of macro pressures. We continue to believe that RingCentral is well positioned to capitalize on the continuing migration of legacy PBX phone systems to the cloud. As our model already contemplated strength, we are maintaining our fair value estimate of $125 per share. With shares trading at a significant discount to our fair value, we see shares as attractive.