By Christiana Sciaudone
Investing.com — Say “ Avaya ,” (NYSE:) and what likely comes to mind are those omnipresent office handsets.
But Avaya is now a cloud play, serving the likes of Google (NASDAQ:), Microsoft (NASDAQ:) and Salesforce (NYSE:). It’s not bad for a company that emerged from bankruptcy in 2017, and in 2019 was still considered a legacy name. Investors have taken note, driving shares up about 40% since the start of 2020.
Avaya was on the block a little over a year ago. Then came a partnership with RingCentral (NYSE:) to launch “Avaya Cloud Office,” creating what could become a leader in cloud communications. The timing was fortuitous, as Avaya shifted from mostly providing support services for their old systems to supporting companies forced to send their employees home to slow the spread of the coronavirus.
“We were in the right place, at the right time,” said Chief Executive Officer Jim Chirico in a video interview. “Today, all of our growth is in areas of cloud and saas,” or software as a service.
The transformation has been quick. The company gave out 2.5 million temporary free licenses to companies whose employees were sent home, to get them started. Those are turning into customers. Now, Avaya is helping companies measure the productivity of work-from-home staff.
“We have insight into what their agents are doing each and every day, and quite frankly, each and every minute,” Chirico said.
Avaya’s key partnerships, like that with RingCentral, mean no need to develop proprietary technology. They have also developed a video communications platform, akin to Zoom Video Communications Inc (NASDAQ:), but not for retail use. The focus is on “large enterprise” and based on security. Chirico cited governments, large financial institutions and health services companies who “really love it.”
“We’re seeing significant growth in those key enterprise customers in multiple segments,” Chirico said. Annual revenue of about $2.8 billion for Avaya is more than Zoom and RingCentral combined.
“We’re in the early innings and we see based on our products and the (total addressable market) that’s out there, there’s certainly an opportunity to grow the company,” Chirico said.
The company has remained profitable throughout its transformation. In August, Avaya reported earnings per share of $1.44, which beat the estimated 79 cents on sales of $722 million, compared to the expected $687 million.
On Aug. 11, following quarterly results, Avaya got price target increases from Morgan Stanley (NYSE:), Northland Capital Markets, Goldman Sachs (NYSE:), Barclays (LON:) and Citi.
In July, Cowen raised its price target to $18 from $15, and maintained an outperform rating, according to StreetInsider.
“COVID is accelerating companies’ long-term business continuity initiatives and that the timely combination of Avaya’s private and public cloud rollouts, Avaya ReadyNow and Avaya Cloud Office, respectively, supports overnight cloud migration for both large enterprises and SMEs,” said Cowen analyst Lance Vitanza in a note, according to StreetInsider. “RingCentral’s CFO suggests that the 7-figure ACO contract that Avaya landed in the UK this quarter is indicative of a pipeline that skews toward larger, chunky deal sizes.”
Chirico declined to comment on potential mergers and acquisitions, but noted the company has a lot of flexibility to invest back in the business.
“In three years, we want to be between being in the pack to leading the pack,” Chirico said. “Three years ago we weren’t even in the pack.”