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2021 Will Be A Turnaround Year For 8x8

Mar. 03, 2021 12:59 PM ET8x8, Inc. (EGHT)CSCO, MSFT, RNG, ZM4 Comments


  • 8x8 had good Q3'21 performance, but free cash flow and profitability are still a concern.
  • The CEO and chairman of the board replaced in December. This follows CFO replacement last June.
  • Consolidation onto a single platform by fiscal year end will improve bottom line although the company will likely incur short term costs as a result.
  • The stock is undervalued on a relative basis but the ESE (forward-looking Rule of 40) score suggests that the new management has a lot of work ahead of it.
  • 2021 will be a turnaround year, but investors should take a wait-and-see attitude.
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8x8 sign at front of building

(Source: Shutterstock)

Digital transformation has been front and center this last year as companies were forced to adapt to a new reality. One of the industries that have benefited most has been cloud communications services. Among those companies servicing this industry is 8x8 (NASDAQ:EGHT). Unfortunately, the company's performance has not been stellar, certainly not relative to its competitors. This is not really a surprise as I have written before about the company's struggles, particularly with its free cash flow margin.

Management Turnover

When there are major management changes, it's usually a sign of trouble. In the case of 8x8, there's been a complete changeout of management, and this is likely due to the company's anemic financial performance in recent times. While the company has certainly grown, its expenses appear to be out of control.

The latest turnover was the replacement of CEO Vik Verma by former RingCentral (RNG) COO Dave Sipes in December 2020. The new CEO appears to be ideally suited for the job based on his previous experience within the industry. The company also installed a new chairman of the board although it isn't clear what the circumstances are for that changeout. These latest moves follow several previous management changes, including the hiring of a new CFO back in June 2020 and more recently a CRO.

Cloud Communications Leading the Digital Transformation Movement

The digital transformation movement was always preordained but it accelerated dramatically in 2020 due to the pandemic. 8x8 provides both Unified-Communications-as-a-Service ("UCaaS") and Contact-Center-as-a-Service ("CCaaS"), applications that are at the heart of digital transformation.

8x8 leadership in cloud communications services

(Source: 8x8)

But the company didn't thrive impress, achieving revenue growth of only 15% YoY in Q3'21, with a significantly negative free cash flow of -19%. Compare this to competitors such as RingCentral which grew revenue by 30% or Zoom Video Communications

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This article was written by

Steve Auger profile picture
Invest in high growth software stocks now

I have been trading stocks, commodities, and options for more than 25 years. I have honed my skills in quantitative analysis and various stock investment tools for 15 years at Portfolio123 and offer services as a consultant in stock portfolios. I also own the financial data service Equity Analytx which provides aggregated fundamentals for a wide range of industries.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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