RingCentral slips as BTIG downgrades on increased competition from Microsoft, Zoom
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RingCentral (NYSE:RNG) shares fell on Tuesday as investment firm BTIG downgraded the cloud communication and collaboration software company, noting it is likely to face increased pressure from Microsoft (NASDAQ:MSFT) and Zoom Video Communications (NASDAQ:ZM) and potential headwinds from the global economy.
Analyst Matt VanVliet lowered his rating on RingCentral (RNG) shares to neutral from buy, pointing out that the company's standing in the space is "being challenged" by other companies which are more aggressive with their pricing and giving customers "lucrative opportunities" to move away from the Ring ecosystem.
"This round of checks has been by far the least positive around RingCentral and seems like a sea change from earlier this year when partners were still very aligned with RNG as the best partner to work with on many levels," VanVliet wrote in a note to clients.
RingCentral (RNG) shares fell 2.6% to $33.40 in premarket trading.
The analyst explained that companies like Microsoft (MSFT) and Zoom (ZM) are pressuring Ring's business model, especially with Microsoft (MSFT) paying more to vendors than Ring is in many cases, shifting them away from RingCentral (RNG).
"This change is leading to a reduction in demand for RNG's platform," VanVliet explained, while adding that Zoom (ZM) is competing on price and getting low-margin contracts that Ring (RNG) "would otherwise be in a competitive position to win."
VanVliet also noted that conversion growth is slowing, which should limit growth next year, as potential customers that are coming up for renewal are not considering RingCentral (RNG) for their services due to price. Increasingly, these customers, including some that operate on multiple platforms already, are "consolidating" around Microsoft (MSFT) or Zoom (ZM).
In August, hedge fund Coatue Management disclosed that it had more than doubled its stake in RingCentral (RNG) during the second-quarter, while making several other changes to its portfolio.
Analysts are largely cautious on RingCentral (RNG). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. In addition, Seeking Alpha's quant system, which consistently beats the market, rates RNG a HOLD.