1. Five9, Inc. (NASDAQ:FIVN)
Share Price: $28.39
Analyst Upside Potential: 76.12%
Forward P/E Ratio: 12.7
Earnings Growth This Year: 10.70%
Number of Hedge Fund Holders: 34
Year-to-Date Decline: 62.64%
Five9, Inc. (NASDAQ:FIVN) is a cloud-based software company that provides solutions for contact centers. The company enables businesses to manage their customer interactions effectively through a cloud-based software that allows communication through various channels.
The company differentiates itself from its competitors due to its artificial intelligence integration that enables features such as automated responses and intelligent routing of customer inquiries to the right agents based on their expertise. To further bolster the growth of its artificial intelligence, Five9, Inc. (NASDAQ:FIVN) has acquired Acqueon, a proactive outbound omnichannel customer engagement company.
While the stock has been down on a year-to-date basis by more than 62% and is one of the worst performing affordable stocks under $40, management is optimistic about its long-term growth especially due to its AI market.
If we look at the most recent quarter (Q2 2024) results the analyst upside potential of 76% seems reasonable. Five9, Inc. (NASDAQ:FIVN) just surpassed the $1 billion mark in annual revenue. Its overall subscription revenue growth was also impressive indicating a 17% increase.
The recent quarter also marked significant logo wins for the company It signed deals for Higher education enrollment management with an expected annualized recurring revenue (ARR) of $1.3 million and another with a healthcare provider with $1.1M in anticipated ARR. It was held by 34 institutional investors in the second quarter of 2024, with total stakes worth $389.9 million. Alyeska Investment Group is the top shareholder of the company with a position worth $94.2.
Brown Capital Management Mid Company Fund stated the following regarding Five9, Inc. (NASDAQ:FIVN) in its Q2 2024 investor letter:
“Five9, Inc. (NASDAQ:FIVN) is a leader in cloud-based contact-center software, which serves as the routing engine to connect callers to agents. With the growth of e-commerce, consumers are making fewer in-person visits to stores but contacting companies more frequently, driving the need for world-class contact-center software solutions like Five9’s. It has been a tough couple of years for Five9’s stock and this quarter provided no relief. Competitive concerns, questions about AI’s long-term impact on the business and deteriorating macroeconomic conditions have all cast clouds over the company’s stock. Five9’s consumer segment, one of its largest divisions, has really struggled of late as clients hire fewer call-center agents, pressuring Five9’s seat-based revenue model. Total revenue growth decelerated to 13% year-over-year in the most recent quarter, down from 28% and 17% in 2022 and 2023, respectively. Moreover, management guided to 16% for the full year 2024, which some consider optimistic given the weak start to the year. These worsening sales trends further weighed on shares during the quarter.
Looking through the current industry doldrums, we see a bright future for Five9. The company inked its largest deal ever during the quarter, which will generate more than $50 million in annual revenue once fully rolled out. We believe this is an important signal of Five9’s long-term potential. The company is attacking a $60 billion market opportunity, is winning new business at industry-leading rates and is gaining share from legacy incumbents stuck with antiquated technology. We continue to assess the potential threat of AI, but so far it has provided an uplift to company results. The company’s AI product is very popular with large enterprises as it assists agents with customer interactions and can sometimes be used to fully automate interactions. Far from shrinking the number of industry seats, as some fear, management said revenue per seat doubles when customers adopt their AI applications. We expect sales growth to pick up markedly in the coming years, which should result in much stronger stock performance.”
While we acknowledge the potential of Five9, Inc. (NASDAQ:FIVN) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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