AI Cloud Communication Will Expand Global Markets

Key Takeaways

• Rising adoption of AI-powered cloud communications and strategic partnerships with global service providers are expanding RingCentral’s market presence and driving recurring revenue growth.
  
• Broad integration capabilities and AI automation are differentiating RingCentral, fostering customer retention, multi-product adoption, and sustainable improvements in margins and cash flow.
  
• Heavy reliance on small business customers, channel partners, and limited international reach exposes RingCentral to heightened economic, regulatory, and competitive risks that threaten growth and margins.

Catalysts

Provides cloud business communications, contact center, video, and hybrid event solutions in North America and internationally.

• Rapid adoption and customer traction for AI-powered products (e.g., AIR, RingSense, RingCX) signals expanding demand for advanced cloud communication and productivity solutions as businesses digitize and seek greater efficiency—an ongoing shift from legacy on-premises systems to unified, AI-powered, cloud-based platforms is poised to drive recurring revenue growth.
  
• Strategic alliances with major global service providers (GSPs) such as AT&T, BT, Vodafone, and others enable RingCentral to efficiently penetrate international markets and large enterprise customer bases, expanding its addressable market and serving as a catalyst for top-line revenue acceleration.
  
• Strong momentum in voice-centric communication, particularly among small and mid-sized businesses in sectors highly reliant on secure, scalable customer interactions, positions RingCentral to capture higher ARPU and reduce churn, supporting durable increases in recurring revenue and customer lifetime value.
  
• Enhanced integration ecosystem—including deep integrations with Microsoft Teams, Google, Salesforce, and over 500 apps—differentiates RingCentral's offering in enterprise accounts, supporting increased multi-product adoption (cross-sell/upsell) and contributing to higher operating and net margin expansion.
  
• Increased AI-driven automation and operational efficiency initiatives are directly reducing development cycles, customer support costs, and sales/marketing overhead, leading to sustainable expansion in operating margins and stronger free cash flow generation.

RingCentral Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming RingCentral's revenue will grow by 4.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.7% today to 7.4% in 3 years time.
• Analysts expect earnings to reach $208.0 million (and earnings per share of $2.07) by about July 2028, up from $-40.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $281.2 million in earnings, and the most bearish expecting $153 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.2x on those 2028 earnings, up from -57.9x today. This future PE is lower than the current PE for the US Software industry at 43.1x.
• Analysts expect the number of shares outstanding to decline by 2.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.52%, as per the Simply Wall St company report.

RingCentral Future Earnings Per Share Growth

Risks

• Heavy reliance on small business customers (30% of ARR, with most customers being SMBs), a segment that can be more vulnerable to economic downturns and macro uncertainty; this could slow revenue growth, increase churn, and amplify earnings volatility.
  
• RingCentral’s international expansion is limited (90% of business is still US/Canada), and future growth depends heavily on global Service Provider (GSP) partners; tighter global data privacy regulations or changes in GSP strategy/alliances could slow international revenue growth and raise compliance costs, impacting margins.
  
• Intense competition from tech giants offering integrated communication tools (e.g., Microsoft Teams, Google, Zoom), along with the risk of commoditization and pricing pressure in UCaaS/CCaaS markets, threatens RingCentral’s ability to maintain high ARPU and gross margins, especially as integration/feature parity increases.
  
• RingCentral’s strategy of rapid multiproduct innovation and heavy investment in AI features ($0.25 billion annually in innovation) could increase R&D spend faster than revenue or successful monetization, risking net margin compression if adoption or upsell initiatives fall short.
  
• Dependence on channel/GSP partners for growth introduces customer concentration risks and limits direct control over GTM execution and client relationships; loss or reduced engagement by key partners (e.g., if GSPs prioritize their own or competitive solutions) could materially impact top-line revenue, earnings, and overall growth trajectory.

Valuation

• The analysts have a consensus price target of $34.34 for RingCentral based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $24.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $208.0 million, and it would be trading on a PE ratio of 18.2x, assuming you use a discount rate of 9.5%.
• Given the current share price of $25.85, the analyst price target of $34.34 is 24.7% 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.