Even by the standards of high-growth tech companies, RingCentral's (RNG) stock has been on quite a run during this bull market, rising more than 15-fold since March 2016.
RingCentral is a top provider of unified communications-as-a-service (UCaaS) solutions that act as cloud-based alternatives to traditional, locally-hosted, unified communications (UC) software. Its subscription plans for small businesses and enterprises cover a slew of voice, video and messaging services, with prices depending both on features and the number of purchased seats.
Shares made new highs last week after RingCentral reported 34% Q4 revenue growth and guided for 25% to 26% 2020 growth. The company also disclosed its annualized monthly recurring subscription revenue grew 32% in 2019 to $960 million.
Following its latest gains, RingCentral is worth $20.5 billion, or a lofty 18 times the midpoint of its 2020 revenue guidance range of $1.125 billion to $1.135 billion.
I recently talked with RingCentral’s CFO Mitesh Dhruv about his company’s sales momentum and product efforts. Here’s a look at notable comments that he made, slightly edited for clarity.
On what motivates customers to choose RingCentral over alternatives.
“Customers choose us for two [main] reasons. One is a seamless unified experience we have...for all modalities. We are able to give our customers a seamless application that ties voice, video and team messaging together in one umbrella.
“And the second is our open platform. We have over 3,000 integrations, 30,000 developers, so customers can actually build on our platform and have custom integrations, so that we are integrated with licensed businesses there.”
On RingCentral’s integrations with third-party apps, and which ones are especially popular.
“There are two different dimensions [to such] integrations. One is the integrations we do ourselves with [independent software vendors]...But the biggest power of the platform is the integrations that the customers can do themselves.
“We announced a large win last quarter [with British supermarket chain] Waitrose....There, the pain point was Waitrose wanted to integrate RingCentral’s applications with their handheld Android devices, Zebra devices. So they were able to then take our application, build a custom integration and then put it on their Android devices, to make their floor people in the stores more productive. So that’s one example of a custom integration...the reason they can do that is because of the open platform.
“That’s one dimension. Dimension two is [independent software vendor] integrations we feel are very popular...the main ones are Microsoft 365, Google G Suite [and] Salesforce.com.”
On which competitors RingCentral is frequently seeing.
“[When] competing for deals, it’s the usual [unified communications] suspects. If you look at the universe of where we are trying to get bids from, the overall universe is 400 million seats. That’s the population we’re going after. So the big ones are Avaya (AVYA) , Cisco (CSCO) , Mitel (MITL) , and then there’s this whole long tail of providers.
“So if you look at the landscape, Avaya, with 100 million seats, has partnered with us. Because they are bleeding share and they wanted to reach out...because their customers are going for cloud [solutions].
“So that’s Avaya. That leaves Cisco and Mitel. There, we’re not seeing any big competitive changes there. And we have constant wins against both of these players.”
“Versus Microsoft, [RingCentral’s] biggest strength is focus and time. Microsoft is fighting multiple battles with multiple players...RingCentral is not [their] core focus.”
“For 8x8, it’s just that we’ve totally outpaced them [in terms of] our products, philosophy of innovation and R&D dollars.”
On the strong growth of RingCentral’s sales via channel partners, and which partners have been particularly big contributors as of late.
“It’s a variety of partners...We’ve got more than 7,000 partners, so it’s hard to name each and every one of them, how they contribute.
"But if you look at the forward-looking story, we did add another interesting [systems integrator] called Atos....the #1 digital transformation pioneer in Europe....They do massive transformation projections, and RingCentral will have a full breadth of products with them, so that’s going to be the next leg of the story there.”
“Sure, we do. We do have an integration...we are all about an open ecosystem in the cloud. We’ve got several integrations like Slack, like Salesforce, like Workday, where we stitch together applications for customers which are best-of-breed.”
“With Zoom...it’s always co-opetition. Everyone is trying to go after the same pie. But if you look at the swim lanes, the swim lanes are very distinct. We are going after the core PBX swim lane. Zoom is going after, call it, the Cisco/Webex swim lane. And Slack is going after the messaging swim lane.
“Now, will there be some overlap with those swim lanes? For sure, over time. But overall, these are distinct swim lanes which may converge over the long run.”
On the growth of RingCentral’s international sales, which currently account for about 10% of its revenue, and which markets are the biggest contributors.
“I think the biggest markets are your usual suspects. It’s the U.K. and some of the Western European countries. But in earnest, [with] a solution like RingCentral, which is so horizontal, there is no reason that international should be only 10% [of revenue].
“So over time, we do expect international growth to continue. And that’s where partnerships like Atos, which is European, will definitely help. Along with Avaya, which...has 50% of their base [in international markets]. So these two engines that we’ve layered on will help us with our [international] efforts going forward.”
On where RingCentral is directing its R&D investments.
“For R&D, it’s mainly in three areas. The first area is, we’re doing a lot of work with Avaya. Having the product co-branded, and making it seamless for Avaya’s installed base to port over to RingCentral. So that’s a big area of investment. Similar to AT&T as well. So those two are sort of bucket #1.
“Bucket #2 is our core, lights-on reliability. We do need to keep our infrastructure fresh….It’s a core service. You cannot afford to have the service go down.
“The third bucket is our open platform, where we are opening up more and more of our platform to our developer ecosystem, so they can write more to the platform.
“It’s not so much of a feature game at this point. We’ve sort of reached feature parity with the on-premise [unified communications] world about a year, a year and a half ago. So now, it’s ‘How can we offer more productivity to the workforce, more than the on-premise world.’”