How 8x8, Inc. Gained 12.6% in May

By Markets Fool.com

Business meetings in a digital world. Image source: Getty Images.

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What: Shares of 8x8, Inc. rose 12.6% in last month, according to data from S&P Global Market Intelligence. Today, 8x8 investors can look back at a market-stomping 22% return so far in 2016, and an even more impressive 52-week gain of 60%.

So what: The provider of internet-based corporate communications tools and services took a huge 7.3% leap on May 20, following the release of strong fourth-quarter results.

8x8 saw fourth-quarter sales leap 32% year over year, driven by 54% higher revenue in the crucial mid-market and enterprise division. The company reported adjusted earnings of $0.03 per diluted share, down from $0.05 per share in the year-ago period.

Full-year sales beat management's guidance without sacrificing profit margins along the way. Looking ahead to the 2017 fiscal year, 8x8 CFO Mary Ellen Genovese projectsfull-year revenue growth of roughly 20% with net margins at levels comparable to 2016's. Analysts followed the report with bullish research notes, adding more fuel to 8x8's red-hot stock chart.

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EGHT data by YCharts.

Now what: The real trick behind this market-moving report was the long-term value of the fastest-growing revenue streams. 8x8 more than tripled its volume of new long-term contracts in the fourth quarter. That's a great way to stabilize a lumpy sales flow and provide greater visibility into the sales prospects in future quarters.

In other words, the small-cap company is maturing into a more predictable operation. 8x8 can still only dream of the economies of scale that come with annual revenue in the billion-dollar range, where archrival Vonage Holdings has made a stable home. But Vonage may not be alone in that club for much longer. 8x8 has nearly tripled its sales over the last five years and sales growth has only accelerated along the way. Meanwhile, Vonage's sales only rose by 4%.

There are no guarantees that these two very different revenue trends will continue undisturbed, of course. But if they do, 8x8 could outgrow Vonage's top-line sales by 2021 or 2022.

That's a fun thought experiment. For now, 8x8 investors only need to consider the idea of cashing in some of the last year's fantastic gains, or ride a winning hand to even further growth. I'm a fan of the networked communications market in general, and of 8x8's nitro-powered growth in particular. The current shift to healthier long-term contracts only underscores my bullish view, and I'll admit that 8x8 shares are starting to look mighty tempting.

The article How 8x8, Inc. Gained 12.6% in May originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.