Cloud And AI Integration Will Drive Enterprise Digital Transformation

Key Takeaways

• Growing demand for cloud-native, AI-powered communication platforms aligns with 8x8's strategy, supporting sustainable revenue growth and higher customer retention through evolving offerings.
  
• Streamlined operations, focus on enterprise and regulated markets, and international expansion drive margin improvement and position the company for long-term differentiation.
  
• Margin compression, competitive pressure, limited AI differentiation, international risks, and customer concentration threaten growth, profitability, and revenue stability despite top-line gains.

Catalysts

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

• Accelerating enterprise digital transformation and the ongoing shift from on-premise to cloud-native, AI-integrated communication platforms is driving increased demand for 8x8's usage-based solutions (CPaaS, UCaaS, CCaaS), supporting sustainable revenue growth and expanding the company's total addressable market.
  
• The widespread adoption of remote and hybrid work practices, along with rising customer expectations for omnichannel, intelligent engagement, positions 8x8's evolving unified communications ecosystem and AI-powered offerings for higher customer retention, greater cross-selling, and increased average revenue per user (ARPU), driving top-line expansion.
  
• Continued momentum and rapid growth in usage-based (consumption/CPaaS) revenue-outpacing seat-based models and now at 17% of service revenue-point to a recurring, scalable revenue stream, which, despite lower gross margin, increases overall revenue visibility and earnings stability as the mix shift matures.
  
• Operational leverage from completing the Fuze migration is removing a major headwind, streamlining the technology stack, and enabling resource allocation to higher-growth opportunities, all of which support improved operating margins and future EBITDA expansion.
  
• Strategic international expansion, innovation through both internal development and third-party ecosystem integrations (especially in AI tools and advanced analytics), and a clear focus on targeting enterprise and regulated markets could enable long-term revenue growth and increased earnings through higher value contracts and improved differentiation in a competitive market.

8x8 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming 8x8's revenue will decrease by 0.1% annually over the next 3 years.
• 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 13.1% in 3 years.
• If 8x8's profit margin were to converge on the industry average, you could expect earnings to reach $94.4 million (and earnings per share of $0.61) by about September 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 analysts price target, the company would need to trade at a PE ratio of 5.5x on those 2028 earnings, up from -12.7x today. This future PE is lower than the current PE for the US Software industry at 36.6x.
• Analysts expect the number of shares outstanding to grow by 4.37% 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

• The rapid shift toward usage-based revenue streams such as CPaaS, while driving top-line growth, is meaningfully compressing gross margins (67.8% in Q1, with further contraction guided for the year), potentially limiting future earnings growth and cash flow expansion despite revenue gains.
  
• Intensifying competition and aggressive pricing tactics from incumbent and legacy vendors-coupled with customer "lock-in" deals-may pressure 8x8's customer acquisition, retention, and pricing power, putting downward pressure on revenue growth rates and long-term margin expansion.
  
• The company's hybrid "build and partner" approach to AI, rather than acquiring proprietary assets, may limit product differentiation and competitive moat in a market where rapid innovation by larger, better-resourced players could outpace 8x8's offerings, raising the risk of customer attrition and stagnating revenues.
  
• Growing exposure to international markets, especially Asia and the UK for CPaaS, increases vulnerability to FX volatility and shifting local regulations, which already impacted both revenue and expenses in Q1 and are expected to continue as headwinds, potentially undermining both top-line and net income.
  
• Despite progress, customer concentration within SMB and mid-market segments and ongoing churn from legacy Fuze migrations expose 8x8 to elevated volatility and downside in recurring revenues, particularly in softer macroeconomic environments or if competitive pressures intensify.

Valuation

• The analysts have a consensus price target of $2.357 for 8x8 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 $3.0, and the most bearish reporting a price target of just $1.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $721.3 million, earnings will come to $94.4 million, and it would be trading on a PE ratio of 5.5x, assuming you use a discount rate of 12.3%.
• Given the current share price of $1.98, the analyst price target of $2.36 is 16.0% 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.