On Friday, Morgan Stanley (NYSE:MS) downgraded 8x8 stock, a provider of voice, video, chat, and contact center solutions, to Underweight from Equalweight. Concurrently, the firm reduced the price target for 8x8 to $2.00 from the previous target of $3.00. The downgrade comes amid concerns over the company's revenue growth and competition within the software sector.
The analyst at Morgan Stanley pointed out that while 8x8's valuation is below that of its SaaS peers, a potential re-rating of the stock is contingent on a re-acceleration of its revenues.
The firm acknowledged 8x8's expansion into areas like Contact Center as a Service (CCaaS), but expressed skepticism about its ability to significantly boost the company's financial performance in the near term.
Morgan Stanley highlighted several challenges facing 8x8, including a lack of clear catalysts that could drive top-line growth and weaker margins compared to its peers. These factors, according to the firm, suggest that 8x8 may not perform as well as other software companies in the event of a market recovery.
The downgrade reflects Morgan Stanley's cautious outlook on 8x8's prospects in the competitive software industry. The firm's revised price target of $2.00 represents a notable decrease from the previous target, indicating lower expectations for the company's stock performance going forward.
Investors and market watchers will likely monitor 8x8's upcoming financial results and strategic initiatives closely to assess whether the company can address the concerns raised by Morgan Stanley and improve its market position.
In other recent news, 8x8, Inc. has reported strong results for the fourth quarter and fiscal 2024. The company saw a 62% increase in annual cash flow and repaid $63 million of 2024 notes.
With a focus on innovation, especially in contact center and cloud telephony, the company launched new products and platform enhancements, leading to a 50% year-over-year increase in sales of new products for the second consecutive quarter.
The acquisition of Fuze has enhanced their capacity for innovation and customer base, contributing over $100 million to their Annual Recurring Revenue (ARR). 8x8 has also prioritized profitability and cash flow, reducing operating expenses and increasing cash flow from operations, which has allowed them to prepay debt and maintain a strong financial position.
The company is committed to returning $250 million to investors through debt repayments from fiscal 2024 to fiscal 2026. Despite challenges in the macroeconomic environment and a slight downturn in CPaaS business in Q4, 8x8 remains optimistic about their growth prospects, with a strategic focus on AI and partnerships with notable AI providers like Meta (NASDAQ:META), Llama 4, and Open.AI. These are the recent developments in the company.
InvestingPro Insights
Amid Morgan Stanley's downgrade of 8x8, real-time data from InvestingPro provides a broader financial perspective on the company. With a market capitalization of $290.25 million and a negative P/E ratio of -4.14, reflecting investor concerns about profitability, 8x8's financial health is under scrutiny. The company's revenue for the last twelve months as of Q4 2024 stands at $728.71 million, with a slight decline of 2.05%. Despite these challenges, one of the two InvestingPro Tips highlights an expected growth in net income this year, suggesting potential for financial turnaround.
Investors should note the stock's significant volatility, as evidenced by a price drop of over 38% in the year to date, and a 41.09% decrease over the last year. Another InvestingPro Tip points out that 8x8 is trading at a high EBITDA valuation multiple, which may signal that the market has expectations of future growth or profitability improvements. For those considering a deeper analysis, InvestingPro offers additional tips, with more detailed insights available through a subscription. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and discover the full range of expert tips to navigate the investment landscape of 8x8 and similar companies.
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