In earnings released for the third quarter of fiscal year 2024, 8×8 Inc. fell short of analysts’ predictions. The cloud-based communications company reported revenue of $181 million for the quarter—a year-over-year decline of 1.8%.

On the upside, the company reported a profit of $0.12 per share, an improvement from $0.07 per share in the same quarter last year. “I am pleased to report that we met our guidance ranges for service revenue and total revenue and exceeded our guidance range for non-GAAP operating margin in the third quarter,” Samuel Wilson, CEO of 8×8, said.

A refresher on 8×8’s business model: As a unified communication platform, 8×8 integrates contact center, voice communications, video, chat, and SMS solutions into a single global cloud infrastructure. 8×8’s offerings aim to eliminate barriers between UCaaS (unified communications as a service) and CCaaS (contact center as a service) so that employees in and out of the contact center can communicate effectively. The company is focused on simplifying collaborative efforts across job functions and locations to enhance customer experiences.

Here’s an overview of the numbers.

Quarterly Performance Versus Expectations

• Earnings: $0.12 per share, vs. $0.10 per share expected ($0.07 in Q3 2023)
• Revenue: $181 million, vs. $183 million expected ($184 in Q3 2023)

Other Key Numbers

• Market capitalization: $434.9 million.
• Revenue growth over the last two years has been unremarkable. The company’s revenue grew from $156.9 million in Q3 FY2022 to $181 million this quarter.
• For new products, 8×8 has seen 60% YoY revenue growth, as well as quarter-over-quarter growth acceleration. The company attributes this growth to workforce optimization, an intelligent customer assistant, digital and voice solutions, and additional subscription-based services.
• Quarterly GAAP operating loss was $9.4 million, about half of the $18.1 million GAAP operating loss of Q3 FY2023.

According to the earnings report, 8×8 significantly reduced its operating expenses during this reporting period. The company’s Q3 sales and marketing costs were slashed by $11.8 million, or 15%. Its Q3 budget for research and development decreased by $1.8 million, or 5%. At first glance that might raise some concerns about the 8×8’s ability to acquire customers without marketing dollars or advance a product without R&D spending. On the earnings call, however, the company stressed its commitment to R&D and credited the lower budgets to “resource realignment.” SEC filings show the R&D budget decrease came from a decrease in stock-based compensation. The decline in marketing spend during the same period was attributed to personnel-related and consulting costs, paid media and marketing services, and other costs, as well as lower stock-based compensation expenses.

8×8 says 66% of Its research and development investment is dedicated to enhancing the contact-center features of its XCaaS (experience communications as a service) platform. This includes integrating AI, refining user experiences, and advancing data capture and analytics capabilities.

Pressures on 8×8

• 8×8’s free cash flow is down about 95% YoY to a reported $639,000 for Q3 2024. This does not give the company a lot of cash to invest in growth.
• In May 2023, Sylebra Capital, an investment management firm based in Palo Alto led by former NBA player Dan Gibson, filed with the SEC to change its status from a passive (13G) to an active (13D) investor. This signifies the firm’s intention to actively engage with the company and potentially advocate for transformative changes. The filing revealed that Sylebra owns 14.39 million shares of 8×8, representing a 12.37% stake in the company. Investors were pleased with this move, and the company’s stock surged more than 12% on the news. However, active investors can sometimes undermine or sidetrack the leadership team.
• 8×8 will likely face down-selling at customer renewal periods due to broader economic conditions.

Analyst’s Notes

The projected revenue for the next quarter is $178.5 million, 3.8% below analysts’ expectations.

Although the company has limited cash available, it appears to be heading toward a more strategic approach for resource allocation to drive growth. As 8×8 operates in a crowded and rapidly evolving space, it must be assertive in setting its offerings apart from its competitors to maintain its competitiveness.

In 2023, 8×8 integrated OpenAI’s generative AI (GAI) technology across its platform, allowing users to personalize customer interactions through self-service, bots, and agents. The company recently introduced new advanced AI features, including meeting summaries with highlights and action items. Most of the intelligent meeting transcriptions and other features are things you would expect to see at this point for any UCaaS or CCaaS vendor.

8×8 has an open approach to third-party integrations, which enables GAI across its entire platform. The company’s AI implementations align with its mission to deliver better employee and customer experiences, particularly with the asynchronous information sharing that is so prevalent in modern work environments.

In recent years, 8×8 has focused on growing its business by serving mid-sized companies, small and medium-sized enterprises, and public sector customers. These organizations usually have between 500 and 10,000 employees and require complex communication and contact-center solutions. Customers of this size are likely to present more cross-selling opportunities for 8×8.

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