Bank Of America: RingCentral's Partnership With Avaya Off To Strong Start

RingCentral Inc RNG announced in October a strategic partnership with Avaya Holdings Corp AVYA to introduce Avaya Cloud Office by RingCentral ("ACO") and early checks by BofA point to a positive start.

The Analyst

Bank of America analyst Nikolay Beliov maintains a Buy rating on RingCentral's stock with a price target lifted from $187 to $198.

The Thesis

First-hand checks with distributors and channel partners who make around 25% of Avaya's installed base of 100 million users generated encouraging results, Beliov wrote in a note. Specifically, partners believe around 50% of the Avaya install base could buy the ACO product.

The partners consider ACO to be another solution it can sell driven by customer needs and preferences, the analyst wrote. The net benefit to RingCentral is based on a financial model of five scenarios consisting of an incremental 10 million, 20 million, 30 million, 40 million, or 50 million new users over the next 12 years. Assigning a series of probabilities for each scenario translates to a $70 per share incremental discounted value benefit to RingCentral's stock.

However, the partnership is "complex" and requires strong collaboration between the two sides, especially in terms of migration technology, sales incentives, marketing, addressing potential channel confusion, and others, the analyst wrote. Encouragingly, there are no signs of any major issues related to confusion over rules of engagement in the field.

Price Action

Shares of RingCentral were flat late Monday.

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