RingCentral (RNG), mcap=$2.8bn, price $29.62 vs $42.84

$RNG pitch:
– Provider of cloud-based unified communication software for enterprises and smaller businesses.
– 20% market share.
– Trades at 2.3x EV/NTM sales – overly pessimistic valuation for recurring revenue software business with 78% gross margins and 30% growth.
– Entry of $MSFT and $ZM in the market intensified competition and somewhat commoditized the industry, but TAM is large enough to support multiple competitors.
– So far RNG has been able to maintain market share and pricing through best-in-class differentiated product offerings.
– Management increasingly focused on Margin expansion and FCF generation.
– Strategic asset that would be an attractive acquisition.
– Private market values are materially higher (at least 2x upside).

$RNG valuation:
– Trades at overly pessimistic 2.3x EV/NTM sales – this compares to a peak of 25x sales reached in Q121.
– Private market values are higher – $ERIC recently acquired comp $VG at 5x NTM revenues.
– Base case target at $115/share – 20x multiple on $5.75 2026 earnings.

Exp. gain: +155% to $115/share by YE25.

Full write-up (free guest account required):

Leave a Comment