Internet-based telephony specialist 8x8 (NASDAQ:EGHT) recently reported record second-quarter revenues of $37.9 million, which translated to adjusted earnings of $3 million, or $0.03 per diluted share. The company witnessed solid growth in new mid-market and channel sales, fueled by an increasing adoption of cloud-based SaaS, or software-as-a-service, unified communications solutions among distributed enterprise customers. 8x8 has increasingly profited from a monthly subscription-based revenue model, which accounted for about 44% of its mid-market and channel sales in the first quarter of fiscal 2015.
8x8 appears well-positioned to capitalize on the increasing number of subscribed services per commercial customer. More importantly, the company continues to benefit from its strong pricing power in cloud-based SaaS markets, which should fuel sustainable monthly service revenue growth in the near future. According to the Infonetics Research VoIP leadership scorecard 2014 results, 8x8 has clearly established itself as a dominant market leader in North America.
Quite recently, 8x8 clinched a number of contracts for supplying cloud-based solutions and services to distributed enterprise customers in the United States. In addition to this, the company has been aggressively expanding its geographical presence in the international markets, especially emerging countries, which could enable it to target the growing base of small- and medium-sized businesses handling large call center operations. However, 8x8 might face fierce competition from fellow voice-over-Internet, or VOIP specialist magicJack VocalTec (NASDAQ:CALL), which has made robust moves into the VoIP space over the past few years.
Here's why 8x8 is poised to outperform
8x8's stock has declined more than 18.9% year-to-date, but the company still foresees a potential opportunity to overturn its sagging fortunes on the back of rising demand for cloud-based products and services across the world. The company is aggressively pushing its cloud communications suites and contact center services into the mid-market and channel segment, which should fare quite well in the North American markets. Meanwhile, the company has made significant investments in sales and promotional programs to expand its domestic subscriber base. High switching costs also favour 8x8 to leverage its strong relationships with commercial customers.
The company has recently inked new channel partnerships with MicroCorp and Telecom Brokerage to deliver cloud communications services to enterprise customers through their combined network of more than 3500+ agents and VARs worldwide. In addition, 8x8 has bagged lucrative contracts for its industry leading cloud contact center services from KnoahSoft, Teleopti, and Zendesk, who plan to integrate their existing products and services with virtual contact center technology. 8x8's recent Virtual Office service enhancements, Branch Office and Switchboard Pro, will also provide increased scalability to distributed enterprise customers managing high-volume call center operations.
With the acquisition of U.K.-based VoIP communications specialist Voicenet Solutions, 8x8 seeks to expand its cloud-based SaaS offerings into the enterprise sector in Europe and the United Kingdom. Most recently, the U.K. government appointed 8x8 to supply cloud computing support and services on Crown Commercial Services, or CCS G-Cloud 5 CloudStore, which aspires to encourage the adoption of cloud-based services across the public sector. 8x8 has also opened a new sales office in the City of London to meet the growing demand for cloud-based communications throughout the U.K.
8x8 has also announced the launch of its cloud-based communications services platform at a new Hong Kong data center facility, which will allow it to engage more mid-market, multinational customers in the Asia-Pacific region. Meanwhile, the company appears well-positioned to benefit from the acceptance of the Virtual Office SuiteApp and Virtual Contact Center SuiteApp for the Built for NetSuite program. magicJack has also announced to offer its VoiP telephony device, magicJack, at more than 10,000 new retail locations in 2014, which could give solid headwinds to 8x8 in cloud-based communications solutions markets in North America.
The bottom line
As cloud-based companies are growing at 30% every year, 8x8 also demonstrates a potential upside opportunity for investors looking to capitalize on the increasing demand for cloud-based communications solutions around the world. 8x8 has stayed profitable for five straight years, and it expects revenue to grow by "at least 25%" during the fiscal year 2015. Going forward, the company could benefit from its recent channel partnerships with Telecom Brokerage and MicroCorp and continued geographical expansions in the international markets.
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