Major upgrade from Merril Lynch to $19 target.
8x8, Inc.
Large wins as mid-market accelerates;
reiterate BUY, PO to $19 from $18
Reiterate Rating: BUY | PO: 19.00 USD | Price: 16.40 USD Equity
3Q results continue set up for sustained revs acceleration
3QFY17 showed again both strong mid-market and enterprise traction, including a win
with a division of a Fortune 50 company. More mid-market and enterprise wins are
significant for 8x8 in several ways: (1) 8x8 gains important enterprise reference
customers; (2) it validates 8x8’s strategy of targeting global accounts; (3) validates the
product portfolio; (4) accelerates the shift to high quality revenues; (5) validates our view
that cloud unified communications is an early market at an inflection point with midmarket/
enterprise adoption just beginning.
Acceleration in mid-market revenues
3Q revenues and net income came in ahead of our estimates (see variance on pg 3).
Constant currency (CC) organic services revenue growth (SR) was 28% y/y, up from 25%
in 1HFY17 and 23% in FY16. CC total revenue growth was 24% vs 22% 1HFY17 as
product revenues decline with more customers choosing mobile only solutions, a trend
that will help overall margins. Mid-market represented 55% of services revs (up 45% y/y
CC organically) vs 36% y/y in Q1FY17 and 40% in 2QFY17. New MRR from midmarket/
enterprise customers/channel grew CC organic 10% y/y vs 40% in 2QFY17 on
tough comps and larger customer deployments taking longer. 50%+ of new MRR came
from the install base.
Several revenue growth drivers
8x8 is going through rejuvenation with several key hires and expanded strategy, which is
adding new growth vectors: (1) traction in the enterprise; (2) global expansion; (3)
several major new channel partners (Arrow, CDW, Intelisys, CSG in Australia/New
Zealand); (4) opening up of the line-of-business opportunity; (5) cross -sell/upsell.
Reiterate BUY, PO to $19 from $18
We raised our PO to $19 based on 5x CY18E EV/Revs (previously $18 based on 5.3x
CY17E EV/Revs), ahead of SaaS comps at 4.2x in light of accelerating organic constant
currency service revenue growth rate (23% in FY16, 25% in 1HFY17, 28% in 3QFY17).
We believe 8x8 has bias for revenue acceleration, profitable/capex light model, large
market opportunity.
1/2 cent Vancouver penny mooching pirates!
