Five9: Contact Center Cloud Transition to Fuel Strong Growth Despite Intensifying Competition

Five9 FIVN is well positioned to benefit from an ongoing transition of contact center operations from legacy on-premise solutions to the cloud. In the cloud-based contact center as a service, or CCaaS, space, only about 20% of the estimated 16 million global contact center agents use cloud software as of 2022. Amid increasing appetite for artificial intelligence, or AI, and automation solutions best served via cloud technology, and a retrenchment of investment by legacy on premise providers, we expect contact center transitions to accelerate over the coming decade. We have taken a fresh look into Five9, but maintain our $59 fair value estimate, and our no-moat and stable trend ratings.

While we believe the company benefits from high customer switching costs among its existing customer base and is executing well on a land-and-expand strategy, we think Five9 faces intensifying competition for new customer wins from CCaaS peers and communication industry titans. The firm has generated uneven returns on invested capital in recent years, and rising competitive pressure leaves us cautious about whether Five9 can generate consistent economic profits required to warrant a moat rating. If Five9 can effectively fend off competitors, leverage investments in product innovation to win sticky enterprise customers and rapidly scale operations in coming years, we could see the company eventually earning a narrow moat rating.

Nonetheless, we anticipate Five9 to continue to clock impressive growth, with a forecast revenue CAGR of 24% over the five years to fiscal 2027. Our estimates are underpinned by mid-teens average growth in agent seats, and low-single-digit growth in average monthly revenue per seat.