Will 8x8 Sink or Swim in 2012?
In fact, this stock crushed all-comers in its industry. Voice-over-IP compadres Vonage (NYS: VG) and magicJack VocalTec (NAS: CALL) couldn't hold a candle to 8x8's returns. Neither could traditional telephony giants AT&T (NYS: T) or Verizon (NYS: VZ) , whom 8x8 considers its main competition.
Can 8x8 repeat this stellar performance in 2012 -- or are the challenges ahead too great for the little phone-tech rebel? Let's find out.
CEO Bryan Martin sees 8x8 working in the "ever-changing business cloud solutions market." With about $20 million in quarterly revenue spread across nearly 27,000 business customers, the average revenue per account comes out to roughly $740 per quarter or $246 a month. We're obviously talking about small to medium-sized businesses here -- 8x8 is leaving retail consumers to magicJack and Vonage.
The company is reaching for larger accounts. Management likes to highlight success stories with 25 lines or more per account -- still far from enterprise-class but larger than the eight lines in the average account.
To get this done, 8x8 is working on developing an indirect sales model as opposed to managing sales calls in-house. The company recently recruited two sales executives from unified communications expert Polycom (NAS: PLCM) to establish a partner network in 2012. So far, more than 40 partners have joined the external sales force; we'll get to know more about them, maybe even including some names, in the next earnings call.
Challenges and roadblocks
The largest obstacle in 8x8's path will always be the wireline phone company. These services aim to replace traditional phone, fax, and other communications lines with an Internet-based and largely software-focused suite. That's easier said than done, especially since the same incumbents 8x8 wants to push out tend to control the network connections on which this newfangled stuff depends.
On the technology side, 8x8 solutions may be compatible with good old copper-wire solutions as well as competing video and voice networks by Polycom and Cisco Systems, but no IT manager ever got fired for choosing Cisco. Two decades of operating history don't count for much when weighed against the imposing market presence of much larger rivals.
How's that 2012 looking, then?
None of the major challenges facing 8x8 today are particularly new. On the other hand, businesses of every size are getting more comfortable with cloud-based infrastructure services every day. The year to come could very well be the one where VoIP telephony hits the tipping point and starts a period of exponential growth.
I'd put that likelihood at about 30%. Extend your time frame to five years, and I'm certain that this will happen before 2016. Investing a little too early in the next business revolution doesn't cost much, especially when compared with the lost opportunity if you miss that hockey-stick moment. I'd use the Foolish watchlist feature to get a closer look at 8x8 if I were you.
Believe it or not, but Foolish analysts see some even better risk-reward equations in today's market. Check out the Fool's top stock idea for 2012 right here -- the report is free, but it won't be around forever.
At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems and Polycom. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.
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