AT&T (NYSE: T) and RingCentral (NYSE: RNG) won’t be going their separate ways after all. AT&T and RingCentral are extending the relationship where small- and medium-sized AT&T business customers use the RingCentral Office cloud-based platform branded as AT&T Office@Hand. Earlier this year, AT&T had informed its AT&T Office@Hand customers that it would be transitioning away from RingCentral. Existing customers would migrate directly to RingCentral, but future accounts would go with whatever AT&T could cobble together for its private-label offering.
Neither stock is moving on Wednesday’s news. AT&T opened slightly lower. RingCentral opened slightly higher — coming within $0.10 of taking out last month’s all-time highs — only to trade lower an hour into the trading day. It’s a win-win. The market just doesn’t realize it yet.
Making the right call
RingCentral offers enterprise communications solutions on the cloud. RingCentral plans start at $15.99 a month, allowing users to make and receive calls from their corporate numbers on IP phones, PCs, tablets, and smartphones. The cloud-based platform also makes it easy to set up conference calls, video conferencing, and faxing across all internet-blessed devices.
RingCentral isn’t the only player offering companies tech-savvy enterprise communications solutions on the cloud. However, it’s hard to argue with RingCentral’s growth. Revenue rose 34% in its latest quarter, well ahead of the 29% to 31% top-line growth that it was publicly modeling. RingCentral’s adjusted profit nearly doubled to $0.19 a share, also trouncing expectations.
AT&T transitioning away from RingCentral wouldn’t have been fatal. It would’ve brought over corporate accounts that it could service and market other products to directly. However, AT&T staying pat with RingCentral opens the door for a larger base of clients on its platform. The move also validates RingCentral as the best-of-class player in this niche.
Analysts generally like the move. William Power at Baird feels this is a net positive for RingCentral, though he’s sticking with his neutral rating on the stock and his $90 price target that is just below where the stock is now. Sterling Auty at JPMorgan also sees this as strategically positive for RingCentral, but he also has a neutral rating on the stock.
AT&T could’ve drummed up an in-house solution or turned to one of RingCentral’s slower-growing rivals to possibly squeeze more of a mark-up to its Office@Hand offering. However, with AT&T still pushing its latest major acquisition through its digestive tract and RingCentral growing just fine under the current partnership, this is the right move for both parties. Intraday stock charts aren’t always the best judges when it comes to grading strategic moves.
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