8x8 has missed its Q1 revenue targets, with the vendor’s total revenue dropping two percent year-over-year.
In total, the vendor raked in $183.3 million, an increase on the previous quarter but a figure that lagged its previous guidance of $186-188 million.
Explaining why on an earnings call, Kevin Kraus, CFO at 8x8, laid the blame squarely at the feet of its Fuze CPaaS business. He stated:
Our revenue performance was impacted by continued challenges in our CPaaS business in the Asia Pacific region and higher-than-expected churn in our Fuze customer base.
"Other revenue for the quarter was $8 million, slightly above the prior quarter and in line with expectations," Kraus concluded.
Some may suggest its CPaaS challenges result from the market becoming increasingly commoditized, with opportunities harder to come by.
Nonetheless, Samuel Wilson, CEO of 8x8, does not see it that way. Instead, he pinpoints two critical reasons for the provider’s CPaaS struggles:
- The pressing need to downsize Fuze contracts.
- Carriers raising their SMS pricing.
The first point aligns with Kraus's thoughts, and Wilson expands on this by stating:
Smaller customers [are] actually moving off the platform, but a significant portion of lost ARR (annual recurring revenue) was due to right-sizing the customer subscriptions as they came up for renewal for upgrades.
Wilson continued by suggesting that it could take "a few quarters" to right-size all customers.
In doing so, the CEO – appointed to the full-time role in May - hints that many Fuze customers had previously signed contracts that exceeded their requirements.
Nonetheless, Wilson described the acquisition, completed in 2021, as a "major success" regardless.
"We doubled the resources focused on innovation, expanded our enterprise customer base, and increased our operating margins and cash flow," he said defiantly.
Alongside these downsizing efforts, Wilson accused carriers of raising prices "very aggressively". The CEO complained:
We were forced to choose between passing along price increases to customers or accepting negative margins.
"We made the sound decision to forego negative margin business, and higher prices caused some traffic to move to other channels."
As a result, usage declined, hurting 8x8’s CPaaS business, despite an uptick in enterprise customers leveraging the solution,
Wilson on the Future of 8x8’s CPaaS Business & RingCentral
While Q1 proved tricky for 8x8’s CPaaS business, Wilson believes the disruption of customers moving away from SMS is only a short-term trend.