The bullish case for cloud communication company RingCentral Inc RNG is based on the company's growth prospects within the large Unified Communications as a Service (UCaaS) market, according to Goldman Sachs.

The Analyst

Heather Bellini upgraded RingCentral from Neutral to Buy with a price target lifted from $189 to $230.

The Thesis

RingCentral has direct exposure to the UCaaS market, which is expected to grow from more than $40 billion in 2020 to $48 billion in 2023, Bellini wrote in the note. Companies who boast hosted/cloud solutions should outperform legacy infrastructure rivals. In fact, RingCentral is best positioned to take advantage of the growing market given its 99.999% availability, the openness of its platform, and go-to-market advantages.

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

RingCentral inked a partnership with Avaya last October and it will come to market in the first quarter of 2020. Bellini said while RingCentral doesn't expect to see any notable benefit until the back-half of the year, investors should be optimistic based on expectations for 2021.

Assuming RingCentral collects an average revenue per user (ARPU) of $33/seat/month from the partnership as part of a "Blue Sky" scenario, the company could report upside to current expectations in 2021. Specifically, current estimates call for annual recurring revenue of $1.425 billion in 2021, but if the partnership proves to be better than expected, ARR could come in at $1.63 billion.

Price Action

Shares of RingCentral hit a new 52-week high and were higher by more than 2.8% to $198.51 at time of publication.