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8×8 Inc. (NASDAQ:EGHT) is a $516m market cap cloud communication software program supplier for organizations. The corporate gives a platform of unified and built-in communication instruments, equivalent to enterprise telephone system, unified messaging and audio/video/internet conferencing (70-80% of revenues). Different main providing is software program for name middle prospects, with providers equivalent to interactive voice response system, automated name routing and automatic dialers, amongst others (20-30% of gross sales). EGHT additionally integrates communication instruments into different platforms, equivalent to Salesforce.

Not too long ago, studies appeared that the corporate may turn out to be an acquisition goal of RingCentral (NYSE:RNG). Potential acquirer a $3.5bn market cap cloud communications software program supplier and one in every of EGHT’s essential opponents within the area. A possible transaction would assist RNG develop its relatively stagnant market share within the more and more commoditized unified communications software program area (at present estimated at 21%). Most significantly, a possible merger would enable RNG to amass EGHT’s contact middle software program enterprise. EGHT administration has famous that contact middle software program section is the corporate’s “crown jewel” and its integration with unified communication choices is a powerful aggressive benefit. Desire for bundled options has become extra pronounced lately given considerably decrease complete value for big organizations versus buying software program from a number of distributors. This 12 months’s macroeconomic headwinds have solely exacerbated this development. As famous by EGHT in the course of the Q2’FY23 earnings call:

Our unified XCaaS platform stays a aggressive benefit for us, and this benefit is barely amplified in a extra cautious spending setting. Latest analysis from Metrigy confirmed that organizations deploying a unified resolution to realize a 56% decrease complete value of possession versus a multi-vendor technique.

Not surprisingly, EGHT’s bundled choices (35% of ARR) have continued speedy gross sales progress – 40% YoY in Q2’FY23 versus 25% progress for total firm. An essential facet is that mixed unified communications-contact middle software program choices have greater margins, decrease churn and better stickiness. Notably, EGHT is the only trade participant providing each unified communications and make contact with middle software program that’s licensed and built-in inside MS Groups. In the meantime, RNG at present doesn’t have its personal contact middle resolution and as an alternative companions with one other vendor NICE.

On a broader degree, contact middle cloud-based software program trade appears have numerous progress runway. EGHT’s contact middle software-focused peer Five9 (NASDAQ:FIVN) has noted that the trade – which has $24bn in TAM – is barely 20% penetrated by cloud options. The remainder continues to be captured by legacy on-premise enterprise telephone system suppliers, equivalent to Avaya, Genesys and Cisco. Apparently, one of many largest on-premise suppliers Avaya is rumored to shortly file for Chapter 11. Furthermore, in Oct’22 Genesys discontinued its second try at a cloud-based contact middle software program resolution this 12 months. These factors recommend RNG may probably be incentivized to seize prospects flocking from legacy suppliers. Notably, contact middle area opponents NICE and FIVN have already seen migration of huge prospects from Avaya.

Acquisition try would come after huge YTD worth decline throughout communication software program shares pushed by macro headwinds. EGHT has declined 74% YTD, in the meantime, RNG and Zoom (NASDAQ:ZM) have fallen 81% and 63%. EGHT’s administration has cut FY2023 (ending March) income progress steering from 21-24% anticipated in Could’22 to 17-18%. Furthermore, the corporate not too long ago initiated layoffs of as much as 10% of its workforce. EGHT at present trades at 1.3x TTM revenues (64% TTM gross margins) – beneath 3x-7x multiples fetched throughout FY2022-FY2019. For reference, RNG (68% GM) trades at 2.5x whereas ZM (76%) fetches 4.7x. Nevertheless, each opponents have grown considerably sooner since 2016 than EGHT (17-29%) – ZM at 55-300+% and RNG at 28-35%, justifying greater multiples. Having stated that, EGHT’s aggressive benefit in mixed choices may probably warrant the next than present 1.3x TTM income valuation. For reference, Vonage – unified communications and make contact with middle software program supplier – was this 12 months acquired by Ericsson at 4.4x 2021 revenues. EGHT’s administration appears to agree that the corporate is affordable – as a part of a current refinancing settlement, EGHT repurchased $60m price of the corporate’s inventory at $5.61/share (21% above present ranges).

It’s price noting that EGHT has recently initiated administration shuffles. Shortly after current rumors, EGHT’s CEO David Sipes (within the place since 2020) left the corporate. Sipes was beforehand the COO of RNG for 12 years, efficiently driving the corporate from $10m to $1bn+ in gross sales. I’m not completely certain what’s the that means of this current transfer, nonetheless, the timing appears relatively attention-grabbing in gentle of current acquisition rumors.


EGHT’s progress lately has been pushed by new shoppers migrating from legacy on-premise enterprise telephone system choices. The digitalization development has been exacerbated with the onset of COVID, with companies migrating to cloud-based telephony and different enterprise communication instruments given their cheapness versus on-premise choices. Furthermore, the corporate has pursued a number of acquisitions, equivalent to unified communications enterprise Fuze ($250m, accomplished in Jan’22) and Wavecell ($125m, Jul’19). In late 2020, EGHT commenced a strategic turnaround, appointing the brand new CEO David Sipes. Sipes subsequently employed a number of different executives from RingCentral. The brand new administration has managed to implement a number of initiatives, equivalent to a partnership with expertise distributor Westcon (to supply 8×8’s software program to enterprise prospects) in addition to product innovation, leading to EGHT’s contact middle software program being licensed by MS Groups.

The enterprise, nonetheless, has been fairly severely impacted by macroeconomic headwinds this 12 months, with income steering minimize for FY2023. It’s price noting right here that FY2023 figures embrace revenues from acquisition of Fuze ($28m in Q2’FY23). Having stated that, since Q1’FY23, EGHT’s administration has reiterated that the corporate’s focus has been on profitability versus progress, anticipated to be driving by value financial savings measures, equivalent to decrease gross sales and advertising and marketing spend. The corporate targets a 5.5% working margin for FY2023 in comparison with 2-4% guided beforehand and 10% in fiscal 2024.

The influence of additional macroeconomic headwinds could be considerably restricted given EGHT’s buyer construction. 58% of EGHT’s prospects have been enterprises as of Q2’FY23 – this compares to 18% for mid-market firms and 24% for small companies. Importantly, EGHT buyer section has been exhibiting spectacular progress 42-54% by way of the primary two quarters of FY2023 – in comparison with extra average growth in mid-market section (22-23%) and a decline in small market section (unfavourable 7% to unfavourable 2%). As noted by the corporate, enterprise prospects have typically displayed greater retention charges, higher effectivity and long run commitments.

Importantly, the corporate has put vital concentrate on its contact middle software program enterprise which is predicted to be the primary progress driver going ahead. Regardless of the section nonetheless being comparatively small in comparison with unified communications software program, EGHT spends 75-80% of its R&D on the section. The corporate has famous {that a} vital a part of MS Groups prospects require contact middle software program, exhibiting the significance of this section within the firm’s choices.


Equally to EGHT, the enterprise has expanded at a gradual 28-35% tempo since 2016, pushed by COVID, buyer shift from legacy suppliers in addition to strategic partnerships with legacy unified communications software program suppliers, international service suppliers (equivalent to AT&T) and channel companions (equivalent to CDW). Amongst notable partnerships is $850m (money + inventory) deal with on-premise unified communications software program supplier Mitel (introduced in Nov’21). Furthermore, since 2019 RNG has had a partnership with Avaya whereby RNG agreed to promote Avaya-branded unified communications software program.

RNG’s administration has famous the significance of the contact middle providing amid broader trade tailwinds, together with massive but underpenetrated TAM in addition to growing shopper desire for bundled choices. From RNG’s CEO in the course of the current investor conference:

It is a sturdy market, smaller in UCaaS, nevertheless it’s earlier in digital transformation. That implies that progress in CCaaS might be going to be above that in UCaaS. Analyst neighborhood, I feel it is to see that the identical means.

Apparently, RNG’s CEO has kind of hinted the corporate may take into account potential acquisitions:

Ryan Patrick MacWilliams Barclays Financial institution PLC, Analysis Division – Analysis Analyst

Wonderful. Vlad, you had numerous nice partnerships and you’ve got made some acquisitions previously. Going ahead, do you assume RingCentral may very well be a possible trade consolidator within the UCaaS market.

Vladimir G. Shmunis RingCentral, Inc. – Founder, Chairman & CEO

Simply by the cycle alone. So one other technique to ask it’s, look, there’s various gamers within the trade now. It is a very massive trade however we had a a lot bigger listing of gamers earlier than as they’d some consolidations and a few individuals simply fell off, frankly. Will there be extra gamers or much less gamers 5 years from now, I might say there’s much less gamers. It won’t be a one participant. It won’t be simply Microsoft or simply Zoom. It needs to be not less than 3 gamers with us being not less than a 3rd participant. Why? As a result of message video telephone and [DT], we’ve one of the best telephone. Zoom, good video and Microsoft, finest messaging with that. Okay. So by no means say by no means. It did make sense.


  • Each EGHT and RNG have considerably vital debt burdens, with D/E ratio of 0.7x for EGHT and 0.4x for RNG. Whereas this means that an all-cash deal could be unlikely, a big inventory element in merger consideration may very effectively be a chance, significantly contemplating an analogous YTD decline within the share worth of each firms. Notably, in Aug’22 EGHT announced refinancing of its convertible senior notes due 2024 ($404m) with newly issued convertible notes due 2028 ($202m) and money ($182m).
  • One other threat right here is EGHT administration’s potential unwillingness to promote the enterprise. The corporate’s management and insiders have a minimal 1.3% possession stake, furthermore, EGHT’s executives have acquired sizable salaries lately.


Given seemingly excessive strategic rationale, a possible acquisition could be extremely strategic for RNG. I anticipate EGHT to warrant a premium to present costs in an organization sale state of affairs, suggesting traders may probably be taking a look at an attention-grabbing setup right here.

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