Company Reports

No-moat Five9 reported a reasonable start to fiscal 2024, with top-line growth and profitability marginally surpassing our expectations. Following the result, we have raised our medium-term margin forecasts based on improving operating leverage, resulting in a fair value estimate increase to $63 per share from $60. While shares jumped after the release, Five9 continues to screen as fairly valued on a risk-adjusted basis, and we prefer moatier, undervalued software peers.

Five9 is squarely positioned to benefit from industry tailwinds including the transition of contact center operations to the cloud, and a shift toward digital first customer engagement and automation. While we forecast Five9 will continue to take market share, the firm faces intensifying competition from contact center as a service, or CCaaS, peers, and communication industry titans competing for a slice of the massive contact center cloud transition pie. In this environment, we expect Five9 will need to continue to invest heavily in go-to-market efforts and product innovation to attract and retain new clients, weighing on profitability upside.

No-moat Five9 reported reasonable fourth-quarter and full-year fiscal 2023 results, which met our top-line forecasts but fell short of our profitability expectations. Amid difficult macroeconomic conditions in 2023, Five9 experienced softer demand from cyclical consumer sector customers, offset by healthy enterprise wins and strong international expansion. Following the result, we maintain our long-term forecasts, however, we raise our fair value estimate to $60 per share from $59 on time value of money. After a sharp correction following the release, Five9 shares screen as fairly valued relative to our valuation.

Five9 is squarely positioned to benefit from industry tailwinds including the transition of contact center operations to the cloud, and a shift toward digital first customer engagement and automation. While we forecast Five9 will continue to take market share, the firm faces intensifying competition from contact center as a service, or CCaaS, peers, and communication industry titans competing for a slice of the massive contact center cloud transition pie. In this environment, we expect Five9 will need to continue to invest heavily in go-to-market efforts and product innovation to attract and retain new clients, weighing on profitability upside.

We maintain our $59 fair value estimate for no-moat Five9 following fair third-quarter 2023 results that narrowly missed our top-line growth and profitability expectations. Five9 continues to benefit from the ongoing secular tailwind of contact center operations shifting from on-premises to the cloud. We still think cloud penetration in this market is around 20%, leaving significant greenfield opportunity for Five9 to grow, and rising interest in AI is accelerating demand from enterprises looking to make the cloud transition. This has started to emerge with 150% year-over-year growth in Agent Assist bookings with positive reports on the AI Summaries capability. Shares traded up over 4% after hours to $59, exactly at our current fair value estimate.

We maintain our $59 fair value estimate for no-moat Five9 following sound second-quarter results which were in line with our top line and profitability expectations. Five9 continues to enjoy tailwinds from the ongoing contact center cloud transition and rising appetite for artificial intelligence and automation tools. However, we believe the firm’s impressive growth outlook has been more than priced in, with shares trading at a lofty 31% premium to our unchanged valuation.

Five9 is squarely positioned to benefit from industry tailwinds including the transition of contact center operations to the cloud, and a shift toward digital first customer engagement and automation. While we forecast Five9 will continue to take market share, the firm faces intensifying competition from contact center as a service, or CCaaS, peers, and communication industry titans competing for a slice of the massive contact center cloud transition pie. In this environment, we expect Five9 will need to continue to invest heavily in go-to-market efforts and product innovation to attract and retain new clients, weighing on profitability upside.

Five9 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.

No-moat Five9 reported first-quarter results above our expectations on both the top and bottom lines, and slightly raised its outlook for fiscal 2023. Macro uncertainty resulted in elongated sales cycles for new logo bookings. The firm noted a large total addressable market expansion rooted in AI for contact-center-as-a-service providers as virtual agents can replace live agents, and be an upselling opportunity as AI works in tandem with live agents. We think one of the most obvious use cases for generative AI is in customer service and contact centers, so Five9 should benefit here. Despite the optically higher outlook, we are maintaining our $59 per share fair value estimate as we note guidance was raised by less than the amount of upside in the quarter. In other words, Five9 effectively lowered its outlook for the year. We view shares as slightly overvalued and prefer several of the wide-moat names within in our coverage.

Five9 reported fourth-quarter results slightly above our expectations on both the top and bottom lines, and mostly maintained its conservative outlook heading into fiscal 2023. Guidance is the result of macroeconomic uncertainty and assumes a strengthening of the business in the second half of the year. Even with the maintained outlook, with our annual model roll we are raising our fair value estimate for the no-moat name to $59 per share from $52 per share. Despite our raised fair value, amid stagnating metrics and a difficult operating environment, we view shares as overvalued and prefer several of the wide-moat names in our coverage.

Five9 provides cloud-native contact center software that enables digital customer service, sales, and marketing engagement. We see a long growth runway and significant market opportunity but also expect no-moat Five9 to require substantial investments as it squares off against larger competitors.

Five9 reported third-quarter results slightly above our expectations, including both top- and bottom-line beats, but provided a disappointing outlook for both the fourth quarter and fiscal year 2023. The company is returning to its midteens preliminary growth outlook for 2023, consistent with prepandemic initial guidance levels. This is well short of our model, and likely the rest of Wall Street as well, as key vertical segments are slowing their expansion and midmarket customers struggle. This is returning CEO Michael Burkland’s first earnings call in five years after serving as chairman of the board for the last five. When considering the weak outlook and decelerating growth metrics, we sharply lowered our estimates for both growth and profitability over the next several years, and therefore lower our fair value estimate for the no-moat name to $52 per share from $130 per share. While we see upside to the stock from here, we prefer several of our wide-moat companies during this period of distress.

Five9 provides cloud-native contact center software that enables digital customer service, sales, and marketing engagement. We foresee a long growth runway and significant market opportunity but also expect no-moat Five9 to require a high degree of investment activity moving forward as it squares off against larger competitors.

Five9 reported strong second-quarter results, including both top- and bottom-line beats, and provided solid guidance for both the third quarter and full year. Five9’s metrics were solid but are trending down, including recurring revenue of 91% and dollar-based retention rate of 118%. On the flip side, enterprise sales expanded to 85% of revenue over the latest 12 months. The continued growth in enterprise revenue is particularly encouraging as larger customers tend to be stickier and provide more upselling opportunities, particularly in automation. Management did note that due to macroeconomic uncertainty, it will be slowing the rate of hiring in the second half of the fiscal year. When considering the encouraging release coupled with macro uncertainty, we are maintaining our fair value estimate of $130 per share and view shares as undervalued.

Five9 provides cloud-native contact center software that enables digital customer service, sales, and marketing engagement. We foresee a long growth runway and significant market opportunity but also expect no-moat Five9 to require a high degree of investment activity moving forward as it squares off against larger competitors.

Five9 provides cloud-native contact center software that enables digital customer service, sales, and marketing engagement. We believe Five9 offers a compelling value proposition for investors looking to capitalize on the migration of contact centers to the cloud and the automation of a portion of contact center labor. Our fair value estimate for Five9 is $130 per share. With shares trading around $95, we view the no-moat, stable moat trend company as an attractive buying opportunity.

Five9 provides cloud-native contact center software that enables digital customer service, sales, and marketing engagement. We foresee a long growth runway and massive market opportunity but also expect no-moat Five9 to require a high degree of investment activity moving forward as it squares off against larger competitors.

We are dropping coverage of Five9. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are placing our fair value estimate for Five9 under review as we transition coverage to a new analyst. We plan to publish an updated report and valuation by mid-August.

Stay at home orders have not slowed down narrow-moat Five9 with the company reporting revenue and bottom-line beats in the first quarter of 2020 and largely maintaining guidance for the rest of 2020--a rarity in recent weeks--due to the ability to fully implement its cloud contract center software remotely. It is not a shock that Five9 showed resilience in these trying times as it has been one of the best performing stocks of 2020 (up roughly 28% year to date). While the short-term results are positive, we are unsure if 2020 is benefiting from a several weeks-long, coronavirus-induced pull forward of future years’ growth or if this pandemic will steepen the adoption curve for the underpenetrated cloud contact center market. With that in mind, we are maintaining our fair value estimate for Five9 at $49, though the recently announced exclusive reselling partnership with AT&T could enable Five9 to capture a larger market share in the long term.