Seeking Alpha
, Google+ (259 clicks)
Long/short equity, special situations, momentum, event-driven
Profile| Send Message|
( followers)  

RingCentral, Inc (NYSE:RNG), a San Mateo, California-based SaaS cloud telephonics firm, plans to raise $90 million through its upcoming IPO. RNG will offer 7.5 million shares at an expected price range of $11.00-$13.00. If the stock can find the midpoint of that range at $12.00 per share, RingCentral will command a market value of $808 million. RNG is expected to go public on September 27.

RNG filed confidentially on June 24, 2013.
Joint Managers: Goldman Sachs, J.P. Morgan, Merrill Lynch
Co-Managers: Raymond James & Associates, Allen & Co

SUMMARY
Founded in 1999, RingCentral aims to make waves in business communications, which are rapidly trending away from traditional private branch exchanges (PBXs) to handle the bulk of communications among employees. PBXs typically require costly, customized hardware and only permit employees to work through their desk phones, whereas RingCentral's flagship software-as-a-service, RingCentral Office, allows employees to use voice, fax, and text communications from devices including smartphones, desk phones, laptop and desktop computers, and tablets. RingCentral Office is impressively designed to be mobile-centric and can be managed and configured from mobile devices.

RingCentral has a significant customer base across the United States and Canada, including some 300,000 customers. RNG has focused on North American small- and medium-sized businesses (those with less than 1000 employees), but has stated interest in expanding into international markets.

VALUATION
RNG offers the following figures in its S-1 balance sheet for the six months ending June 30, 2013:
Revenue: $73,229,000
Net Loss: ($23,881,000)
Total Assets: $48,500,000
Total Liabilities: $69,225,000
Stockholders' Equity: $(20,725,000)

RNG has posted impressive total revenues of $50.2 million, $78.9 million and $114.5 million in 2010, 2011 and 2012, respectively, which translates to year-over-year increases of 57% and 45%. It also has posted consistently increasing gross margins over the same period.

CONCLUSION
Though RingCentral is not currently profitable, we see a lot of upside in this firm's stock. RNG's highly experienced management team has the technical and business chops to negotiate the booming market for software to operate across multiple devices in the coming "Bring Your Own Device" era, as described below. Significant portions of recent losses are due to the high cost of operations in a period of massive expansion; this firm probably has a more direct path to profitability than most, though we'd like to see RNG turn that particular corner sooner rather than later.

The firm's unique niche in business communications and swiftly expanding revenues and gross margins are also very encouraging and make it an attractive takeover candidate for a larger technology firm like Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN).

We would be a buyer of this IPO in the $11 to $13 range and would not be surprised to see the range increased as we approach September 27th and as the company finishes its road show presentations to institutional investors.

We are very pleased to see that Doug Leone from Sequoia Capital has been on the board of directors since 2006 and that Sequoia is currently a significant owner. It is also important to us that the high quality boutique firm of Allen and Co. is involved in this quality underwriting.

BUSINESS
RingCentral's future looks bright in a business world that increasingly operates on a "Bring Your Own Device" basis. Small businesses in particular now often require employees to provide their own devices for work purposes, and RingCentral's malleable, mobile-oriented technology simplifies integration of communications between various devices tremendously. At a per-user price tag of $20/month, RingCentral is also a highly cost-effective option for small businesses.

RingCentral's cloud communications products are, of course, highly dependent upon the functionality of the internet. In areas that suffer frequent internet failures, the firm's software is unlikely to become popular. Moreover, the recent scandals surrounding government intrusion into internet communications may lead to some downward pressure on share prices of firms that primarily trade in internet communications.

Cloud communications is hardly a wide-open field, and RingCentral faces several competitors that have stronger resources and are significantly better capitalized. The most prominent of these are Cisco Systems (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT) , AT&T (NYSE:T), j2 Global (NASDAQ:JCOM), and Verizon (NYSE:VZ).

Management
CEO and Chairman Vladimir Shmunis has both a lengthy, steady tenure with RingCentral and an impressive resume in the fields of software development and executive management. Mr. Shmunis is a co-founder of RNG and has served the firm in his current positions since its inception in 1999. He had previously founded Ring Zero Systems, Inc., and served as its President and CEO between 1992 and 1998; the firm was eventually acquired by Motorola, Inc. (NYSE:MSI). Mr. Shmunis holds a B.S. and M.S. in Computer Science from San Francisco State University and has worked in software development for numerous Silicon Valley firms. RNG could scarcely ask for a more qualified chief. The recent addition of CFO Clyde R. Hosein only adds to RNG's executive firepower. Mr. Hosein has previously served as CFO for Marvell Technology Group (NASDAQ:MRVL) and Integrated Device Technologies (NASDAQ:IDTI).

Source: RingCentral Rings My Bell Loudly As IPO And Future Takeover Loom

Additional disclosure: This article was written for informational purposes and partly based on the S-1. Investors should carefully read the S-1 and consult with their financial adviser before making any investment decisions.