A Unified Reason to Invest in 8x8


Seeking stocks that others ignore, shun, or simply forget gives individual investors like you an edge over the professionals. Getting in before Wall Street discovers them -- or rediscovers them -- means you can stake a claim before they start taking off.

Here we check out companies with minimal analyst coverage, but which still generate high marks from investors.

Voice-over-IP provider 8x8 is doing for small and medium-sized businesses what Vonage and magicJack VocalTec did for the consumer market, but it's expanding beyond those narrow confines by providing a unified platform of communications for office, remote, and mobile environments, connecting any location, any network, and any device with no software downloads, plug-ins, or additional hardware required. With all three Wall Street analysts covering the communications provider believing it will outperform the broad market indexes, it's likely 8x8 won't stay hidden for long.

Hiding in plain sight
"Unified communications" is the new catchphrase, though the concept has been around for a long time when all that was necessary was to organize in one spot all of a business' calls, faxes, emails, and voice mails. Today, however, it's more than just a company's PBX system where the internal telephones of a business are also connected to the public switched telephone network, though that remains its core and it is how 8x8 is introduced to its customers. All 30,000 of the VoIP provider's customers have its PBX system as their base.

Unified communications as a service takes that core and expands it to the cloud so that those in the field, across the country, and around the globe, can access all that internal corporation communication data through smartphones or tablets, regardless of what network someone is using. Services provided by Cisco , Avaya, or someone else is tied to the box made by someone like Polycom .

8x8 opens that box and allows anyone in the company, anywhere in the world to securely access the data. The key to its success has been that it provides a single platform without having to cobble together parts or apps. For example, companies can get Skype or Google Hangout for free, but that's just a single communications bridge; they still need to go and find the other components to put together a system. 8x8 spans the gap by providing a holistic solution to the entire network of needs.

It's a lucrative industry, too. According to the market researchers at Frost & Sullivan, unified communications as a service will grow into a $1.9 billion market this year, a near-16% increase over 2011. However, the market's still coming into its own, particularly in emerging markets like India where Tata Communications is the recognized leader, though its video services alone are growing at a better-than-22% annual clip.

That kind of opportunity attracts competition, and while established communications industry leaders like AT&T , Sprint , and Verzion offer Cisco's hosted collaboration solutions, it's viewed by some more as a bolt-on platform that starts with voice communications, but then other services like messaging and web conferencing are added on at additional cost. Even Microsoft has communications options that access these varying requirements, but it can get pricey at the most complete package levels.

8x8 offers a relatively low-cost alternative that gives its customers a suite of products and abilities, including voice mail, call center services, and more, giving clients a complete virtual office. Where it has made its mark is in the very small business market, as its average customer has just 10 lines for which it's paying just $25 per line. As it has started going up-market to larger enterprise class customers, pricing can get even better for 100 or more lines.

Low-cost leader
In the most recent quarter, average monthly revenue per business customer grew 25% while the number of services they subscribed to rose to 10.1 from 8.6, yet churn plunged to 1.7%. 8x8 recorded 36% revenue growth last quarter, hitting a record $25.3 million as business customer revenue surged 46% from the year-ago period. In short, 8x8 is gaining more customers who purchase more services and spend more money with them (and drop out at a decelerating rate).

At 24 times its free cash flow, 8x8's enterprise value continues to trade at a premium, though I noted a similar situation a few months ago and its stock has jumped 23% since then. I continue to find the growth story for the VoIP provider a compelling one, and while I would always like to buy my stocks at a discount, there may be more growth still to come because of the expanding nature of the industry. Tell me in the comments section below whether you feel it provides a unified reason for investing in it.

Just remember, without much analyst support, you'll have to do more digging on your own to see whether it deserves a spot in your portfolio, so don't just buy or sell it on that basis alone.

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The article A Unified Reason to Invest in 8x8 originally appeared on Fool.com.

Fool contributor Rich Duprey owns shares of Cisco Systems. The Motley Fool owns shares of Google and Microsoft. Motley Fool newsletter services recommend Cisco Systems, Google, Microsoft, and Polycom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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