On Friday, Mizuho (NYSE:MFG) Securities revised its outlook on 8x8 Inc . (NASDAQ: NASDAQ:EGHT), a provider of cloud communications services, downgrading the stock from Neutral to Underperform. The firm also adjusted the price target downward to $2.50 from the previous target of $2.75. Currently trading at $3.12, InvestingPro analysis suggests the stock is undervalued despite the downgrade. The revision reflects concerns over the company's revenue growth and profitability.
The analyst at Mizuho indicated that while 8x8 has developed a robust cloud communications platform, the company's revenue growth is expected to be slightly down in the fiscal year 2025, ending in March. This aligns with recent performance, as InvestingPro data shows revenue declined by 2.39% in the last twelve months, though the company maintains a healthy gross profit margin of 68.29%.
There is also skepticism about a return to growth in fiscal year 2026, where a consensus forecast suggests a modest 2% year-over-year increase. The continued migration of Fuze customers, which is not anticipated to be completed until the calendar year 2026, is seen as a potential risk factor for the company's growth.
Additionally, 8x8's growth is reported to be lagging behind the broader mature Unified Communications as a Service (UCaaS) market. This market has seen mid-single-digit percentage year-over-year growth, indicating that 8x8 is not keeping pace with overall industry trends.
Despite 8x8's meaningful strides in expanding margins over the past two years, the analyst expects the company's operating margin to contract by more than 200 basis points year-over-year in fiscal year 2025. This contraction is attributed to the company's plans to add back sales capacity, which includes a six to nine-month ramp time for sales representatives.
The report concludes that due to these top and bottom-line headwinds, 8x8's performance is likely to underperform relative to its peers in the market. This assessment has led to the downgrade and reduced price target for 8x8's stock. Despite these concerns, InvestingPro data reveals the stock has shown strong momentum with a 34.77% return over the past six months. Subscribers can access additional insights, including 8+ ProTips and comprehensive valuation metrics, in the Pro Research Report available for this and 1,400+ other US stocks.
In other recent news, 8x8 Inc. has reported a successful second quarter of fiscal 2025, exceeding market expectations. The company disclosed a service revenue of $175.1 million, along with a non-GAAP operating margin of 11.9%. Additionally, there was noteworthy growth in sales of new products and AI-based solutions. The firm also managed to reduce its total debt by over $173 million since Q2 2023, bringing it down to $369 million.
In terms of future developments, 8x8 is planning to complete customer upgrades from the Fuze platform by the end of 2025. For the upcoming Q3, the company anticipates a service revenue between $171 million and $174 million, and total revenue between $177 million and $182 million, with an operating margin of 10% to 11%. Despite these strong performances, a slight decline in service revenue is expected due to cautious guidance and uncertainties in the CPaaS business.
In a significant move, 8x8 has expanded its board with the addition of John Pagliuca, a seasoned executive with over two decades of leadership experience in the software and SaaS industries. This appointment is part of 8x8's ongoing efforts to strengthen its leadership team and strategic direction.
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