Oppenheimer cuts RingCentral to a perform rating on expected headwinds

By Michael Elkins

Oppenheimer downgraded RingCentral (NYSE:) to a Perform rating (from Outperform) and removed a $50.00 price target from the stock as the analysts expect new headwinds to hinder the cloud-based communication company.

They wrote in a note, “The migration of PBX to the Cloud has been a significant tailwind for RNG, but the next leg of growth will stem from the convergence with digital AI assistants, which will require investment. This could also cause ZM to be aggressive with UCaaS pricing. Lack of transparency from management also warrants caution—underlying unit economics CAC, LTV, lines, churn, etc.) are a black box, and Adj. EBITDA is not converting to FCF as much as we expected. The latter point suggests that accounting has been aggressive. Many of these problems can be fixed, or the company could be acquired as it has the best UCaaS Service, but it will take time.”

In addition to the projected headwinds, Sridhar Srinivasan resigned from RingCentral’s board in February, three months after being elected, continuing a trend of management turnover that has plagued the company over the last two years.

Oppenheimer reduced their 2023 and 2024 revenue estimates by 2% and 4% to $2.18 billion and $2.47B, respectively. FCF estimates were also reduced (adjusted for working capital) by 30% to $227M and $280M.

Shares of RNG are down 6.10% in end-of-day trading on Friday.