Like some other publicly-traded companies offering cloud-based communications services, RingCentral (RNG) – Get Report has had a pretty good year.
RingCentral, a top provider of unified communications-as-a-service (UCaaS) solutions that deliver voice, video and messaging services via cloud data centers, has seen its stock rise 63% this year. That leaves shares up more than 10-fold over the last four years.
The company’s revenue grew 32% annually during the first half of 2020 to $500.1 million, with annualized recurring revenue (ARR) up 33% at the end of June to $1.1 billion. And thanks in part to soaring remote work activity, RingCentral saw video and mobile voice minutes on its platform more than double sequentially in Q2.
I recently talked with Anand Eswaran, RingCentral’s President/COO and formerly a senior Microsoft and SAP exec. The interview followed a February discussion with RingCentral CFO Mitesh Dhruv. Here are Eswaran’s comments on several topics related to his company, slightly edited for clarity.
Where RingCentral is currently directing its R&D investments.
Eswaran: “We’re accelerating [R&D spending] across many different things….Obviously, we have our differentiated MVP (message, video, phone) platform. So we are further investing in phone to widen the moat we already have…focusing on enterprise depth and vertical use cases. So [we’re] further differentiating the phone moat we have.”
“We’re seriously investing in video. As you know, we launched RingCentral Video on April 2. And so we are investing on feature depth, on differentiation, on security on user experience.”
“We are investing our R&D resources on our strategic partnerships…with Avaya, with Alcatel-Lucent. We are releasing our co-branded products, we are increasing our international presence every quarter for all of those partnership products.”
“And then number four is the certifications and platform integrations. You know, whether it is direct routing with Microsoft Teams, so we can [address] the fact that Teams doesn’t have strong telephony [capabilities]. Vertical integrations, Canvas, Smarsh, etc with [RingCentral Video].”
“And the last one I would just call out is basically making sure we continually expand our geographic footprint. So our R&D investments are across all these five pivots…if anything we’re accelerating R&D spend in light of the opportunity we have.”
What RingCentral sees as its biggest selling points for RingCentral Video — a major overhaul of its videoconferencing solution that rolled out to customers this spring — relative to solutions such as Zoom and Microsoft Teams.
Eswaran: “If we just take a step back on video, the first [question] is, ‘What are the critical essential features of good enterprise video?’ Easy to join, clear audio, clear video, screen share, security. So you literally start there.”
“Obviously, Zoom (ZM) – Get Report is a great product. It just works. In fact, we have so many joint customers because Zoom was a very key partner. We feel pretty good about [RingCentral Video].”
“So let me first talk about some of the differentiators. The first thing which is making a big difference is the unified app, because what the unified app does is it creates a more sticky ability to collaborate. [Video is] not a transactional feature — you join a video, you leave — you have messaging and you’re able to continue the collaboration. So the unified app across message, video [and] phone, we call it MVP is making a big difference.”
RingCentral’s Q2 growth rates. Source: RingCentral.
“The one-click, join-on-the-web [capability]…we don’t force you to download an app. Click a link, you can get in…It takes 20 seconds, gets you right in. The one-click join gets us a lot of feedback, especially as our customers connect with their customers, making sure that they’re not forced to download is a great thing. The quality of analytics, from our heritage of telephony, — cloud PBX — analytics played a key part. So the live oscilloscopes on audio [and] video quality, I can see you know how your video quality is, is making a big difference. That’s a huge…differentiator.”
“The fourth thing I would call out is simple features….I’’m on a Mac right now. If my kid is screaming in the other room, I can [with] one click switch this entire experience to my mobile device and keep walking. And when I come back, I can [with] one click switch back to my desktop. So that is a huge difference.”
“And the last one I’ll call out is trust. RingCentral is probably one of the few companies, if not the only company, in the UCaaS space to offer extreme reliability. We offer service which is five nines. Nobody else is able to do that. If I look at Teams, at best they offer three-nines on their platform.”
“We offer five nines because voice is mission critical. You can have a conversation with patchy video. If our audio goes patchy, our conversation ends, so that trust and the ability to offer five nines is really critical. So those are the things which [are] very positively received.”
“Our product is now [just] two and a half quarters old…So we are catching up on feature gaps like webinars. I think the big three [remaining features] — webinars, virtual backgrounds and waiting rooms — [are] imminently around the corner, which we will announce. This is where we are spending an outsize portion of our R&D spend. Not just on innovation and features, which we think is table stakes, but in [terms of] leapfrogging on experience and differentiation.”
Whether RingCentral is seeing certain competitors more often lately when competing for deals.
Eswaran: “We do see Microsoft (MSFT) – Get Report, we do see Zoom. But at this point…we feel pretty good about where we stand in the space of UCaaS as a clear, separated differentiator. Some of the reasons I already talked to you [about], which [include] global footprint. 100-plus countries where we have the ability to offer an international number. Security, five nines, nobody else does that, and the trust which goes along with that. An open footprint. 40,000 developers, 4,000-plus integrations. And then the ability to offer this sticky experience across MVP.”
“So we feel pretty good about where we stand, even as we see, maybe, Microsoft and Zoom pop up a little more [when competing for deals]. The other reason why I feel really good about that is we also collaborate with Microsoft…I ran the enterprise business for Microsoft, so [I’m] deeply familiar with, with the company and the business. They have a huge enterprise presence. We connect [with] Teams and integrate deeply with Teams, so Teams can leverage the power of cloud PBX from RingCentral. That’s a huge ask from many different enterprise customers.”
“So not only do we feel good about the instances [where] we compete. I feel pretty good about the fact that we also collaborate with them in instances [where] they are already present in the enterprise.”
The use of RingCentral’s services in tandem with Microsoft Teams and Slack.
Eswaran: “We haven’t shared publicly what the usage trends are…Slack (WORK) – Get Report, Microsoft, Salesforce (CRM) – Get Report. These are [the most frequently-used] integrations we have across the 4,000-plus integrations we have. So they’re absolutely top of the heap, that I can share.”
“Simple use cases…just the ability to dial directly out of Microsoft Teams and essentially use the power of the PBX. That depth of integration is actually making a difference, so that’s where we see a lot of the enterprise customers, who already are Microsoft customers, wanting the power of a cloud PBX to line up with Teams, which is pretty weak in telephony.”
How large RingCentral’s contact center-as-a-service (CCaaS) software business has become.
Eswaran: “As a percentage of ARR, I think our CFO shared [it’s] very, very high single digits, and I’ll leave it at that…We see a trend where UCaaS and CCaaS decisions are converging from a customer standpoint, so…half our large deals in Q2, as we shared in the earnings call, have some elements of contact center [solutions] in them as well. We also had a new logo record, as we shared…we see more and more customers make joint buying decisions.”
“[There is] research from Aberdeen Research which says [that] when companies make UCaaS and CCaaS strategies jointly, their employees are actually 30% more productive. And so that is a trend, and we feel pretty good that we are one of the few significant UCaaS leaders who have very, very deep CCaaS integrations as well.”
Whether RingCentral is interested in joining rivals in developing machine learning-powered features such as live captions, meeting transcripts and virtual and blurred backgrounds.
Eswaran: “Absolutely, absolutely. That and more. We have a little bit of strength and knowledge and heritage in voice, so we’re gonna bring all of that to bear from the depth of QoS and analytics, all the way through everything else you talked about, [such as] live transcriptions, and more. But I wouldn’t pre announce any of that. So let’s wait and see what we announce.”
RingCentral’s international growth and efforts.
Eswaran: “International has been a huge strength for us this quarter, and obviously partnerships coming in make a huge difference as we look at next year, and [will] further international growth. But our international market growth has been a shining star for us in our performance in the last couple of quarters.”
“We just announced a new data center launch in Germany as well. Again, part of extending the geographic footprint. You know, we announced 11 countries for Unify Office as we launched that on August 31 in Q3…We have 41-plus data centers across the world. So all of these [strengths] come together.”
The expected impact of RingCentral’s new partnerships with French IT services firm Atos and Alcatel-Lucent Enterprise — both of which have large European customer bases — on its international revenue.
Eswaran: “Our partnerships are an absolutely key pillar of our international growth strategy. Atos Unify, which we announced in July and Alcatel-Lucent, which we announced in August. So, between the two of them, that’s going to be a core pivot for international growth, and absolutely will [become] a significant portion of the revenue mix, and [make international revenue] a more substantial part of it.”
“We haven’t really announced any details of exactly how the modeling comes in from a revenue standpoint. But for Alcatel-Lucent, the joint product comes out towards the end of Q2, so expect it to show up [as a]decent amount [of] our externally-reported revenue towards the end of next year. As for Atos Unify, we actually did launch that product absolutely bang on time on August 31, and so expect that to start showing up towards the middle of next year. But we haven’t really called out specifics beyond that. Expect to start seeing our partnership-based revenue show up next year.”
Whether RingCentral is interested in using the capital it has raised this year via $1 billion and $650 million convertible debt offerings to make acquisitions.
Eswaran: (Laughing) “That’s a good question, man. You and I need a beer and off-the-record to have that conversation. But [it’s] safe to say…we have a very thought-through set of ideas [about] how we will be using the money.”