Why Cloud Communications Stocks Soared in August — The Motley Fool

What happened

Leading cloud communications specialists saw their share prices rise in August, according to data from S&P Global Market Intelligence.

RingCentral (NYSE:RNG) led the way with a 26.3% surge, followed by 8×8 (NYSE:EGHT) at 13.8% and Vonage Holdings (NYSE:VG) scoring a 10.7% gain. All of these one-month returns crushed the broader market, as the S&P 500 benchmark notched just a 3% gain last month.

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So what

Vonage got the party started with a solid second-quarter earnings report on Aug. 1, meeting analysts earnings target while exceeding Wall Street’s revenue estimate and guiding full-year revenue to levels just above the then-current analyst consensus. Analyst firm Oppenheimer quickly raised its price target on Vonage’s stock from $14 to $16 per share, citing accelerated growth opportunities as Vonage shifts its business mix toward a more profitable model.

RingCentral followed suit the next week, beating analyst expectations across the board in its own second-quarter report. That report triggered a slew of price target boosts from Wall Street firms. In early September, RingCentral extended its cloud-based communications relationship with telecom giant AT&T (NYSE:T), tying Ma Bell’s business-class calling services into RingCentral’s internet phone platform.

8×8 reported its results near the end of July, leaving the smallest of these three rivals without an earnings-based boost of its own. In fact, 8×8 had a remarkably quiet month with no real news to speak of. Instead, the stock simply hitched a ride with RingCentral’s and Vonage’s gains.

Now what

All three of these tickers have been crushing the general market in 2018. Vonage’s share prices have notched a 38% year-to-date return, trailing behind 8×8’s 60% gains and RingCentral’s staggering 92% lift.

Internet-based communications platforms are all the rage these days, and for good reason. Building a platform for sharing voice, video, and information around a cloud architecture is bound to save costs and improve functionality compared to traditional landline solutions. I’m only surprised that it took the business world this long to realize this simple concept and start taking action on it.

The cloud communications sector has been kind to my CAPS score since both Vonage and 8×8 rank among the 12 highest scores among my 143 CAPS picks. And this looks like the mere beginnings of a powerful growth sector for the long run.

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