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RingCentral - Waving The Red Flag

|About: RingCentral, Inc. (RNG), Includes: AVYA
Summary

In our ongoing review of RNG's 2Q19 financial reports, we have uncovered serious red flags that reinforce our negative view on the stock and make us suspicious of the Company.

The P&L indicates an annualized run rate in R&D expense of $125MM, which is 16%-17% of recurring revenues, alarming since UCaaS/VoIP is a global technology that is widely proven.

Guidance for 2019E stock-based compensation is $103-105MM, which is over 12% of annual sales guidance and wipes out all economic profits of the Company leaving net income in the red.

Adding just these two lines items together means RNG is spending almost a quarter billion dollars to develop technology that is proven worldwide and to pay management an absurd amount of equity that they have been dumping onto the market while the recently announced AVYA deal has not even closed.

We smell something bad here.  These issues suggest RNG lacks corporate governance and possibly could be engaged in a swindle.  R&D spend is absurd, while massive stock-based compensation is being added back to the bottom line to trick investors into an adjusted EPS number that is a mirage.  We reiterate our STRONG SELL and $125 target price.

2Q19 Earnings Press Release

RingCentral Announces Second Quarter 2019 Results

2Q19 Form 10-Q Filing

https://www.sec.gov/Archives/edgar/data/1384905/000138490519000015/0001384905-19-000015-index.htm

Insider Sales Wave at RNG

https://www.insider-monitor.com/trading/cik1384905.html

More analysis forthcoming...

Disclosure: I am/we are short RNG.

Additional disclosure: We intend to provide additional commentary in our ongoing coverage of RNG.