1. Five9, Inc. (NASDAQ:FIVN)
Year to Date Gain as of October 28: -61.11%
Number of Hedge Fund Holders: 34
Five9, Inc. (NASDAQ:FIVN) is a software infrastructure company that offers cloud software for contact centers. While the company was expected to outperform amid the digital revolution and the Internet of Things, that has not been the case. The stock is down by about 61.11% for the year, emerging as one of the worst-performing growth stocks.
The company has come under immense pressure on growing concerns that artificial intelligence applications will reduce the staffing of contact centers, therefore triggering a significant reduction in Five9, Inc. (NASDAQ:FIVN)’s market share and revenue streams. Consequently, Investors have been pushing the stock lower in the aftermath of management cutting top-line guidance by -3.8%. The cut implies management expects revenue to grow by 11.5% in 2024, down from 17% growth in 2023.
Amid the growth concerns, investment firm Anson Funds Management has amassed a significant stake in the call center software company and started pushing for a sale. The investment firm wants the company to consider a sale as one of the ways of unlocking value, coming on the heels of Five9, Inc. (NASDAQ:FIVN) pushing back on a deal to be acquired by Zoom Video.
Nevertheless, Five9 has also embarked on a cost-cutting drive with plans to cut its global workforce by 7% as it seeks to increase shareholder value. The layoffs are part of the company’s plans to drive profitable growth and support a long-term outlook. Consequently, it has revised its earnings per share guidance upwards by 4.6%.
In its Q2 2023 investor letter, Brown Capital Management Mid Company Fund provided the following insight regarding Five9, Inc. (NASDAQ:FIVN):
“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 FIVN as an investment, 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 an AI stock that is more promising than FIVN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
