RNG Q3 Deep Dive: AI Product Growth Offsets Cautious Outlook for Next Quarter

Cloud communications provider RingCentral (NYSE:RNG) met Wall Streets revenue expectations in Q3 CY2025, with sales up 4.9% year on year to $638.7 million. On the other hand, next quarter’s revenue guidance of $622 million was less impressive, coming in 3.8% below analysts’ estimates. Its non-GAAP profit of $1.13 per share was 5.2% above analysts’ consensus estimates.

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StockStory’s Take

RingCentral’s third quarter results met Wall Street’s revenue expectations but prompted a negative market reaction due to concerns about forward momentum. Management attributed the quarter’s performance to continued growth in its core voice communications platform, increased adoption of AI-driven solutions, and operational discipline. CEO Vlad Shmunis highlighted that “pure AI annual recurring revenue is growing in strong double-digit rate sequentially,” while also noting robust voice usage across healthcare, financial services, retail, and professional services. The company’s efforts to expand margins and reduce stock-based compensation were also emphasized as key contributors.

Looking ahead, RingCentral’s guidance reflects a more cautious stance, with management prioritizing sustainable growth and operational efficiency. The company is investing heavily in AI-led products and expects these to exceed $100 million in annual recurring revenue by year-end. CFO Vaibhav Agarwal stated, “We are scaling our AI-led products, which are well on track to exceed $100 million in ARR by year-end,” but also acknowledged ongoing cost management efforts and the need to balance innovation with shareholder returns. The trajectory of new product adoption and the durability of customer demand will be central to future performance.

Key Insights from Management’s Remarks

Management highlighted that progress in AI-led solutions, expansion in key verticals, and disciplined cost management drove quarterly performance, while execution in partnerships and internal adoption of AI contributed to margin improvement.

• AI-driven product momentum: Adoption of the AIR (AI Receptionist), AVA (AI Virtual Assistant), and ACE (AI Conversation Expert) products accelerated, with AIR surpassing 5,800 paying customers and ACE used by over 4,300 customers. These solutions contributed to both revenue growth and measurable customer ROI, such as increased appointment volume and improved sales rep productivity.
• Vertical strength supports resilience: Voice usage and customer engagement remained robust in core verticals—healthcare, financial services, retail, and professional services—which together represent over half of RingCentral’s business. Management noted that double-digit growth in voice minutes demonstrates continued relevance despite broader market skepticism about voice communications.
• RingCX contact center traction: The RingCX solution saw double-digit sequential growth and now represents a significant share of large enterprise deals. Integration of CommunityWFM’s workforce engagement features has expanded the offering, making it more competitive and comprehensive for contact center customers.
• Internal AI adoption drives efficiency: Management reported that deploying its own AI products across departments led to faster resolution times in customer support and improved sales quota attainment, directly translating to operational scalability and margin expansion.
• Cost discipline and capital allocation: Ongoing focus on hiring discipline, offshoring, vendor consolidation, and reduced stock-based compensation has driven margin improvement. The company also continued to prioritize debt reduction and share repurchases, supporting long-term shareholder value.

Drivers of Future Performance

RingCentral’s management expects AI-driven product adoption, recurring revenue growth, and continued cost efficiency to shape guidance amid a more cautious revenue outlook.

• AI product adoption as growth lever: Management is prioritizing the expansion of AI-led products, expecting these offerings to drive new subscription revenue and improve customer retention. The company aims to surpass $100 million in annual recurring revenue from these solutions by year-end, with broad adoption across customer segments and growing contributions from global service provider partners.
• Margin expansion through efficiency: Ongoing internal use of AI, disciplined hiring, and cost controls are expected to further improve non-GAAP operating margins and free cash flow per share. Management highlighted that greater automation and operational streamlining should allow expenses to rise slower than revenue, supporting profitability even if top-line growth moderates.
• Risks from macro and competition: Management acknowledged that slower revenue guidance for next quarter reflects some macroeconomic caution and longer sales cycles, particularly in large enterprise and government sectors. Additionally, RingCentral’s competitive advantage in voice AI is being tested by new entrants, but management believes its scale, data, and established distribution network provide defensible strengths.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) the pace of adoption and revenue contribution from new AI-led products, (2) further expansion and integration of the RingCX suite, especially following the CommunityWFM acquisition, and (3) continued improvements in operating margins and free cash flow. Execution on these fronts will provide crucial evidence of RingCentral’s ability to sustain profitable growth amid evolving market conditions.

RingCentral currently trades at $29.10, down from $29.90 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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