8x8, Inc. (EGHT)

Executive Summary / Key Takeaways

• Debt Transformation Complete: 8x8 has reduced its debt by 41% from the August 2022 peak of $548 million, bringing net leverage from over 6x EBITDA to approximately 2.7x, while generating record operating cash flow of $63.6 million in fiscal 2025—yet the stock trades at just 0.78x enterprise value to revenue, suggesting the market hasn't priced in this de-risking.

• Core Growth Acceleration Masked by Fuze Headwinds: Excluding legacy Fuze revenue, 8x8's service revenue growth has accelerated for four consecutive quarters to 4.6% in Q4 2025 and nearly 6% in Q2 2026, but the ongoing Fuze platform sunset (targeting December 31, 2025) will create a 1.5-2 percentage point headwind in fiscal 2027, obscuring the underlying business momentum.

• Usage-Based Revenue Surge Reshapes Economics: Platform usage revenue has grown from 13% to 19% of service revenue in just one year, driving 30%+ growth in consumption-based offerings but compressing gross margins from 69% to 65.7%—a deliberate trade-off that management argues will drive higher lifetime value through increased customer stickiness and multi-product adoption.

• International Strength vs. US Pricing Pressure: While the UK and international markets (nearly 40% of revenue) are growing substantially faster, the US faces "price compression and gamesmanship" from a major video conferencing competitor and post-pandemic seat rationalization, forcing 8x8 to compete on product breadth rather than price alone.

• The Critical Investment Question: With the Fuze transition ending, debt manageable, and AI-driven products gaining traction (Intelligent Customer Assistant adoption up 75% year-over-year), 8x8 must prove that its multi-product strategy (customers with 3+ products have 3x higher revenue and 94% gross retention) can drive sustainable high-single-digit growth before the market assigns a valuation multiple commensurate with its improving fundamentals.

Setting the Scene: The Communications Platform Behind the Transformation

8x8, Inc., originally incorporated in California in February 1987 and reincorporated in Delaware in December 1996, has spent nearly four decades building voice infrastructure before reinventing itself as a cloud communications platform. The company entered the UK market in 2013, a move that now positions international operations as its primary growth engine. For most of its history, 8x8 operated as a traditional UCaaS provider, selling seat-based subscriptions for voice, video, and chat. The 2021 acquisition of Fuze marked a turning point—adding scale but also $250 million in debt and a legacy platform that would take years to integrate and sunset.

Today, 8x8 operates a single, cloud-native platform that unifies UCaaS (8x8 Work), CCaaS (Contact Center), and CPaaS (communications APIs) into one integrated solution. This matters because mid-market enterprises (500-10,000 employees) increasingly reject vendor sprawl, preferring a single platform that can handle internal collaboration, customer engagement, and custom communications workflows. Unlike pure-play competitors—RingCentral in UCaaS, Five9 in CCaaS, or Twilio (TWLO) in CPaaS—8x8 offers a "one throat to choke" model that reduces integration complexity and total cost of ownership.

The industry is undergoing a fundamental shift from fixed-seat licenses to usage-based consumption models. Metrigy research shows over 50% of CX leaders now prefer consumption pricing, and 8x8 is riding this wave. However, this transition creates a different financial profile: higher growth but lower gross margins. The company is deliberately sacrificing near-term profitability to capture what management calls an "unstoppable force" in enterprise buying behavior. This strategic choice defines the investment thesis—can 8x8 scale its usage revenue fast enough to offset margin compression and drive operating leverage?

Technology, Products, and Strategic Differentiation: The AI-Native Platform

8x8's core differentiation lies in its integrated architecture and decades of voice infrastructure expertise. While competitors excel in individual domains—RingCentral's app ecosystem, Zoom 's video quality, Five9's analytics depth, Twilio's developer flexibility—8x8 embeds communications directly into business workflows. The platform's AI capabilities are not bolt-on features but native components: real-time call transcription in 50+ languages, Intelligent Customer Assistant (75% adoption growth), and AI-powered routing that reduces handle times.

The recent launch of 8x8 Workforce Management through a new App Store represents the company's first product-led growth (PLG) initiative. By offering a free version to all contact center customers, 8x8 aims to replace Excel-based scheduling—a move that seems modest but addresses the reality that most contact centers under 100 seats use spreadsheets. This PLG strategy lowers customer acquisition costs and creates a funnel for premium upgrades. Management explicitly states they are "not trying to compete with Calabrio and Verint (VRNT)" in large contact centers, instead targeting the underserved mid-market where simplicity and integration matter more than advanced gamification.

The CPaaS business is the hidden gem, growing over 30% year-over-year and now representing 19% of service revenue. This includes programmable voice, video, digital messaging (WhatsApp, RCS , Viber), and authentication APIs. A UK utility reduced on-site visits by 40% using video in the contact center and CPaaS messaging. A Fortune 500 retailer pilots RCS for order updates with seamless agent handoff. These use cases demonstrate how 8x8's platform enables digital transformation beyond traditional communications.

Why does this matter? Because usage-based revenue has fundamentally different economics than seat-based subscriptions. While gross margins are lower (usage revenue carries ~50% margins vs. ~80% for subscriptions), the revenue is more aligned with customer value and less susceptible to seat churn. Management argues this drives higher lifetime value and net revenue retention—upgraded Fuze customers achieved 94% gross retention and over 100% net revenue retention in Q1 2026. The trade-off is clear: accept near-term margin pressure for long-term customer stickiness and expansion.

Financial Performance & Segment Dynamics: The Numbers Behind the Narrative

8x8's financial results tell a story of transformation obscured by legacy headwinds. Total revenue in Q2 2026 was $184.1 million, up just 1.7% year-over-year, but this masks the underlying momentum. Service revenue grew 2.3% to $179.1 million, beating guidance by $4 million. More importantly, excluding Fuze customers, service revenue grew nearly 6%—the fourth consecutive quarter of acceleration. The remaining Fuze revenue is now just 3% of service revenue, down from 7% a year ago and 11% in Q3 2024.

The mix shift to usage revenue is dramatic and deliberate. Platform usage grew from 13% to 19% of service revenue year-over-year, adding $11.9 million in Q2 2026 alone, primarily from Asia-Pacific. Subscription revenue declined $7.9 million, predominantly from former Fuze customers migrating to lower-priced 8x8 plans. This dynamic explains the gross margin compression from 69% in Q4 2025 to 65.7% in Q2 2026. Management is guiding full-year gross margins to 65-66%, down from historical levels above 70%.

Operating margins tell a more nuanced story. Non-GAAP operating margin was 9.4% in Q2 2026, above the high end of guidance, despite the gross margin headwind. This reflects disciplined cost control: stock-based compensation fell to 2.9% of revenue, a multi-year low, and total operating expenses declined 1.6% year-over-year. The company has reduced debt principal by $224 million since August 2022, cutting quarterly interest expense from $10 million to under $5 million. This interest savings directly supports net income, which is why non-GAAP EPS of $0.09 beat guidance by $0.01 despite margin pressure.

Cash flow generation remains robust. Operating cash flow was $8.8 million in Q2 2026, above guidance, and the company ended the quarter with $76.7 million in cash. Over the past two years, 8x8 generated $142 million in operating cash flow, the highest two-year period in its history. This funds the transformation without requiring external capital. The company has made 10 debt repayments over 16 quarters, demonstrating consistent capital discipline.

The balance sheet is now manageable. Net debt to trailing 12-month EBITDA is approximately 2.7x, down from over 6x at the peak. The 2024 Term Loan has $122 million remaining, with no required payments until June 2026. An amendment created a $25 million basket for tuck-in acquisitions, giving management flexibility to invest in growth. This deleveraging is complete enough that the company can now pivot from defense to offense.

Outlook, Management Guidance, and Execution Risk

Management's guidance for fiscal 2026 reflects cautious optimism amid macro uncertainty. Service revenue is projected at $692-706 million, implying 1-3% growth, but this includes the final Fuze headwinds. The company is guiding to 65-66% gross margins and 8.5-9.5% operating margins, acknowledging the mix shift impact. Cash flow from operations is expected at $38-42 million, down from $63.6 million in fiscal 2025 due to working capital timing and increased investment in growth initiatives.

The key execution risk is timing. CEO Samuel Wilson admits that "executing transformations of this magnitude are seldom linear," and the company is "still working through the revenue headwinds of the Fuze customer upgrades." The upgraded Fuze cohort shows 94% gross retention, but only 60% of the remaining base is expected to migrate. This creates a mathematical headwind: early churners leave quickly, while stayers often "shrink it down to a smaller size" before expanding again. The result is a 1.5-2 percentage point drag on fiscal 2027 growth.

Management is deliberately investing ahead of revenue. The shift to solution selling, partner enablement, and PLG requires upfront spending that pressures near-term margins. Wilson states, "I am not going to share ROI calculations because if I share with you I'm sharing it with every competitor," but insists the investments are monitored carefully. The bet is that multi-product adoption—customers with three or more products now account for one-third of subscription revenue and have 3x higher average revenue—will drive net revenue retention above 100% and accelerate growth as Fuze headwinds fade.

The competitive environment adds execution risk. Wilson describes the US as "the center of price compression and gamesmanship," led by "a certain video conferencing company who seems to be price-agnostic." Post-pandemic seat rationalization is real: customers who rushed to cloud during COVID are now rightsizing at 2-3 year renewals. However, 8x8 is offsetting this with AI products, messaging, and digital channels. A customer may reduce UC seats but add RCS messaging, keeping average revenue per customer flat to up. This dynamic is critical: can 8x8's product expansion outpace seat compression?

International markets provide a counterbalance. The UK and international business is "almost 40% of our business and growing substantially faster," driven by strong CPaaS adoption and less irrational competitive behavior. Asia-Pacific grew over 30% year-over-year, and the UK saw a 100%+ increase in channel partner bookings. This geographic diversification reduces dependence on the troubled US market, but also exposes the company to FX volatility—the strong dollar created a $1.3-2.3 million headwind in recent quarters.

Risks and Asymmetries: What Could Go Right or Wrong

The investment thesis faces three primary risks. First, the US competitive environment could deteriorate further. If price compression accelerates beyond current levels, 8x8 may be forced to sacrifice margins to maintain share, undermining the path to operating leverage. The company's SMB concentration (over 50,000 small businesses) makes it vulnerable to economic downturns, as seen in the 14-year high in US bankruptcies affecting some customers. Credit card default rates remain stable, suggesting the core SMB base is resilient, but any deterioration would hit 8x8 harder than enterprise-focused peers like RingCentral or Zoom .

Second, the usage revenue model could prove less sticky than management believes. While management argues consumption-based pricing aligns with customer value, it also introduces volatility. CFO Kevin Kraus notes they are "forecasting usage-based revenue growth more cautiously given potential variability in consumption patterns." Seasonal patterns—higher usage in holiday quarters, lower in March—create quarterly fluctuations that could disappoint investors expecting linear growth. If gross margins stabilize below 65% and operating margins fail to expand, the market may never re-rate the stock.

Third, the AI and PLG investments may not scale efficiently. The Workforce Management launch is 8x8's first true PLG product, and success is not guaranteed. If adoption is slow or the premium version conversion rate is low, the company will have invested in a growth engine that fails to materialize. Similarly, while AI adoption is strong (75% growth in Intelligent Customer Assistant), revenue from new AI products is still in the "single-digit millions" per quarter. The transition from feature to revenue driver is not yet proven.

The asymmetry lies in the potential for accelerated growth post-Fuze. If 8x8 can retain even 60% of the remaining Fuze base while growing its core business at 6-8%, revenue growth could inflect to high-single digits by fiscal 2027. The hard savings from shutting down the Fuze platform—mid-single-digit millions in direct costs, plus intangible savings from reduced security and compliance overhead—will flow directly to operating income. Combined with $20+ million in annual interest savings from debt reduction, this creates a clear path to margin expansion even with gross margin pressure.

Another positive asymmetry is the multi-product flywheel. Customers with three or more products show gross retention above 90% and net revenue retention over 100%. As the percentage of multi-product customers grows—currently one-third of subscription revenue, trending toward a majority over the next 3-4 quarters—the overall churn rate should decline, improving revenue quality. The first 7-product customer win demonstrates the platform's ability to expand within large accounts, a capability that pure-play competitors cannot match.

Valuation Context: Pricing a Transformation in Progress

At $2.19 per share, 8x8 trades at a market capitalization of $303.6 million and an enterprise value of $563.7 million (net of $76.7 million cash). The stock trades at 0.78x enterprise value to trailing twelve-month revenue of $715 million—a multiple that reflects a business in transition rather than one with accelerating growth. For context, RingCentral trades at 1.55x EV/Revenue, Five9 (FIVN) at 1.57x, and Zoom at 3.93x, despite 8x8's improving cash flow and deleveraging.

The price-to-operating-cash-flow ratio of 5.64x and price-to-free-cash-flow of 7.75x are more attractive than revenue multiples would suggest. 8x8 generated $63.6 million in operating cash flow in fiscal 2025 and is guiding to $38-42 million in fiscal 2026. The debt-to-equity ratio of 2.67x remains elevated but is down dramatically from peak leverage, and the company has no near-term liquidity concerns with no required debt payments until June 2026.

The challenge is that 8x8 remains unprofitable on a GAAP basis, with a -24.5% operating margin and -0.82% profit margin. While non-GAAP operating margins are positive at 9-10%, the gap reflects high stock-based compensation (though down to 2.9% of revenue) and amortization from past acquisitions. Until GAAP profitability is achieved, the stock will likely trade at a discount to profitable peers like RingCentral (RNG) (5.21% operating margin) or Zoom (ZM) (25.24% operating margin).

The valuation hinges on whether 8x8 can achieve the high-single-digit revenue growth management targets for fiscal 2028. If the company can grow revenue at 6-8% while expanding operating margins to 12-15% as Fuze headwinds fade and interest expense continues to fall, the stock would likely re-rate toward 1.5-2.0x EV/Revenue, implying 100-150% upside from current levels. If growth stalls at 2-3% and margins compress further, the stock could trade sideways or down as investors lose patience with the transformation timeline.

Conclusion: A Turnaround at an Inflection Point

8x8 has executed a remarkable financial turnaround, reducing debt by 41%, generating record cash flow, and returning to year-over-year revenue growth after nine quarters of decline. The core business, excluding Fuze, is accelerating with four consecutive quarters of improving growth, driven by a strategic shift to usage-based revenue and AI-powered products. The multi-product strategy is working, with customers using three or more products showing 3x higher revenue and 94% gross retention.

However, the transformation is incomplete. Gross margins have compressed to 65.7% due to the mix shift toward lower-margin usage revenue, and the US market remains intensely competitive with price compression from larger rivals. The Fuze platform sunset will create a final headwind in fiscal 2027 before the underlying growth can shine through. Management's guidance reflects appropriate caution, but execution risks remain around scaling the PLG strategy and maintaining growth momentum.

For investors, the central question is whether 8x8's integrated platform approach and international strength can overcome US competitive pressure and margin headwinds to deliver sustainable high-single-digit growth. The stock's valuation at 0.78x EV/Revenue and 7.75x free cash flow suggests the market is not pricing in this possibility. If 8x8 can achieve its fiscal 2028 growth targets and expand margins as Fuze savings and interest reduction flow through, the upside is substantial. If competitive dynamics worsen or usage revenue proves more volatile than expected, the downside is limited by strong cash generation and manageable debt.

The next 12 months are critical. With the Fuze platform scheduled to shut down on December 31, 2025, and AI products gaining traction, 8x8 must prove that its platform pivot can deliver both growth and profitability. The pieces are in place; now the company must execute.