8×8, Inc. (NYSE:EGHT) just released its latest second-quarter results and things are looking bullish. Results overall were solid, with revenues arriving 2.8% better than analyst forecasts at US$110m. Higher revenues also resulted in substantially lower losses which, at US$0.42 per share, were 2.8% smaller than analysts expected. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. Readers will be glad to know we’ve aggregated the latest forecasts to see whether analysts have changed their mind on 8×8 after the latest results.
Taking into account the latest results, the latest consensus from 8×8’s 14 analysts is for revenues of US$439m in 2020, which would reflect a solid 13% improvement in sales compared to the last 12 months. Losses are expected to be contained, narrowing 12% from last year to US$1.48. Yet prior to the latest earnings, analysts had been forecasting revenues of US$437m and losses of US$1.25 per share in 2020. So there’s definitely been a decline in analyst sentiment after the latest results, noting the real cut to new EPS forecasts.
The consensus price target held steady at US$26.18, seemingly implying that the higher forecast losses are not expected to have a long term impact on the company’s valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. The most optimistic 8×8 analyst has a price target of US$30.00 per share, while the most pessimistic values it at US$18.50. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It’s pretty clear that analysts expect 8×8’s revenue growth will slow down substantially, with revenues next year expected to grow 13%, compared to a historical growth rate of 18% over the past five years. Compare this to the 418 other companies in this market with analyst coverage, which are forecast to grow their revenue at 12% per year. Factoring in the forecast slowdown in growth, it looks like analysts are expecting 8×8 to grow at about the same rate as the wider market.
The Bottom Line
The most obvious conclusion is that analysts made no changes to their forecasts for a loss next year. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for 8×8 going out to 2022, and you can see them free on our platform here..
It might also be worth considering whether 8×8’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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