RingCentral (RNG) reported Q3 results that matched expectations, as strength in its small and mid-sized business and global service provider segments, along with growing adoption of new artificial intelligence-driven products, offset continued pressure in the enterprise business, Morgan Stanley said in a Tuesday note.

According to the report, profitability remained solid, with the non-GAAP operating margin up about 180 basis points and free cash flow climbing 23% to $130 million. The company raised its full-year FCF guidance to between $525 million and $530 million.

Subscription revenue grew 5.6% year over year, slightly below expectations, while total annual recurring revenue rose 6% to about $2.63 billion. Enterprise ARR growth slowed to roughly 3.2% from 4.9% in the previous quarter amid renewal pressures from longer-term COVID-era deals, the report said.

Morgan Stanley noted, RingCentral expects to surpass its 2025 target of $100 million in new product ARR, driven by strong momentum in AI offerings such as AI Conversation Expert and AI Receptionist.

The firm maintained an equal weight rating on the stock and raised its price target to $31 from $29.

Shares of the company fell 6.2% in recent trading.

Price: 28.08, Change: -1.86, Percent Change: -6.21