Digital Transformation And AI Will Drive Cloud Communications Demand

Key Takeaways

• Accelerating product adoption, cross-selling, and an API-driven platform position 8x8 for sustained revenue growth, industry outperformance, and market share gains.
  
• Strong operating discipline and global expansion support robust margins, recurring revenue, and resilience against regulatory and macroeconomic challenges.
  
• Margin compression, regulatory burdens, escalating competition, underinvestment in innovation, and industry consolidation threaten 8x8's revenue growth, market share, and long-term profitability.

Catalysts

Provides contact center, voice, video, chat, and enterprise-class application programmable interface (API) solutions worldwide.

• While analyst consensus expects multiproduct adoption and cross-sell to drive gradual improvement in retention and monthly recurring revenue, the real upside is that 8x8's land-and-expand approach is seeing accelerating momentum-case studies show clients rapidly scaling from one to seven products, and product attach rates are feeding a step-change in both revenue per customer and long-term retention, setting up a sustained uplift in ARR and net margins ahead.
  
• Analysts broadly agree that increased AI product adoption and usage-based models will incrementally lift revenue and gross margin mix, but the actual growth trajectory is even steeper: with AI interactions growing over sevenfold year-over-year, more than 200% growth in API-based messaging interactions, and usage-based revenues climbing 1–2% of mix per quarter, the inflection point from seat-based to highly scalable, consumption-led revenue could drive an earnings growth curve far ahead of expectations.
  
• The accelerating migration from legacy, on-premise systems and the ongoing troubles of traditional vendors are creating a massive, near-term displacement cycle, and 8x8's cloud-native, API-driven platform is uniquely positioned to capitalize on this, supporting outsized market share gains and robust long-term revenue growth as digital transformation initiatives intensify worldwide.
  
• Regulatory requirements and the global demand for secure, compliant communications solutions position 8x8 as a premium provider to governments, healthcare, and enterprises; ongoing global expansion, particularly in Asia-Pacific and regulated industries, is likely to deliver rapidly compounding revenue streams and protects earnings durability even as foreign exchange volatility and macro headwinds cycle through.
  
• 8x8's demonstrated operating discipline-18 consecutive quarters of positive operating cash flow, ongoing debt reduction, and new financial flexibility for strategic acquisitions-enables aggressive reinvestment into innovation and customer experience, setting the stage for expanding operating leverage, accelerated net margin expansion, and potential for accretive M&A that could rapidly scale both revenue and profitability.

8x8 Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on 8x8 compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming 8x8's revenue will grow by 1.4% annually over the next 3 years.
• Even the bullish analysts are not forecasting that 8x8 will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate 8x8's profit margin will increase from -3.0% to the average US Software industry of 13.4% in 3 years.
• If 8x8's profit margin were to converge on the industry average, you could expect earnings to reach $100.3 million (and earnings per share of $0.62) by about August 2028, up from $-21.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.9x on those 2028 earnings, up from -11.8x today. This future PE is lower than the current PE for the US Software industry at 36.0x.
• Analysts expect the number of shares outstanding to grow by 6.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

8x8 Future Earnings Per Share Growth

Risks

• Commoditization of cloud communications services and the rapid growth of usage-based, lower-margin CPaaS revenue is causing a shift in the company's revenue mix, leading to declining gross margins that may compress net margins and limit earnings growth over time.
  
• Increasing emphasis on global cybersecurity, data sovereignty regulations, and compliance requirements could raise operational complexity and costs, potentially hindering 8x8's ability to scale internationally or effectively serve regulated sectors, negatively impacting revenue growth and margins.
  
• The accelerating adoption of artificial intelligence and automation within business communications is likely to favor larger technology incumbents with more robust R&D and integrated platforms, creating a risk that 8x8, as a mid-sized pure-play, loses relevance and faces increased competitive pressures, resulting in potential market share loss and stagnant revenues.
  
• Persistent operational restructuring, cost reallocation, and the company's limited increase in operating expenses aimed at boosting growth may impair long-term investment in product innovation and customer support, raising the risk of customer churn and hindering the ability to retain and grow recurring revenue streams.
  
• The industry trend toward consolidation, with rivals such as Microsoft Teams, Zoom, and RingCentral expanding through integrated suites, threatens to erode 8x8's market share and pricing power, potentially reducing customer acquisition and renewal rates, which could impair future revenue and profit generation.

Valuation

• The assumed bullish price target for 8x8 is $3.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of 8x8's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.0, and the most bearish reporting a price target of just $1.5.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $748.3 million, earnings will come to $100.3 million, and it would be trading on a PE ratio of 6.9x, assuming you use a discount rate of 12.3%.
• Given the current share price of $1.84, the bullish analyst price target of $3.0 is 38.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.