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RingCentral management turnover and slowing growth make it tough to command higher multiple - Jefferies

Published 12/12/2023, 16:46
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RingCentral, Inc. (NYSE:RNG) was cut to Hold from Buy at Jefferies on Tuesday after the company announced its CEO would step down. Jefferies also reduced its price target for the stock to $35 from $40 per share.

RNG said Monday that the company and CEO Tarek Robbiati had mutually agreed that Robbiati would step down and resign from the board of directors, effective December 8. However, they clarified that the move did not result from any disagreement with the company or the board.

Furthermore, RNG said Vlad Shmunis, the company's founder and executive chairman of the board, has returned to his full-time role as CEO.

While Jefferies believes RNG's previous CEO Shmunis taking back the reins should help business continuity, analysts see the quick management change as "a likely symptom of either the new strategy not taking hold or execution not improving as expected."

"Though co-founder and chairman Vlad Shmunis will move back into the CEO seat and the PR says the departure was not due to any disagreement, we do not see it as a great sign that the CEO left so quickly," said Jefferies. "Further, Mr. Robbiati is the second high-profile departure, as Mo Katibeh resigned as President/COO of RNG in August 2023."

"We see RNG as an attractive takeout candidate given the need for consolidation in UCaaS and the reasonable valuation. However, analysts believe the sale may be less likely with Mr. Shmunis returning in a more active role as CEO," the firm added.

Furthermore, analysts believe the growth concerns at the company may not stabilize in 2024, adding that the thesis that RNG is cheap has not worked.

"While RNG's valuation is undemanding at 1.8x EV/ rev on 2025 and 7x EV/FCF on 2025, analysts believe concerns around mgmt turnover, growth slowing further, unit economics degrading in the face of competition, and lower likelihood of a takeout will all make it tough to command a higher multiple," the firm concluded.

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