In this article, we discuss the 10 worst-performing growth stocks in 2024.
Economic Growth and Market Resilience
Economists anticipate modest US economic growth in the upcoming quarters, and some continue to caution that a mild recession could occur. If high interest rates have a lagging negative effect on American consumers, it might be challenging for investors to locate reliable growth stocks to purchase.
Nevertheless, analysts at UBS are confident that the upward trajectory in the equity market is poised to continue amid the uncertainties regarding the US election and soaring geopolitical tensions in the Middle East. The strategists led by Jonathan Golub have already raised their S&P 500 target to 6,400 from 6000 on the belief that the US economy will remain resilient and supportive of the equity markets.
READ ALSO: 10 Most Promising Future Stocks According to Analysts and 10 Most Promising Growth Stocks According to Hedge Funds.
The Swiss bank expects the interest rate cuts by the Fed to be supportive of the economy, therefore fueling a 3.7% nominal growth in 2025. Likewise, the rate cuts should lower interest expense on borrowed capital and, in return, the default risk, which should add to earnings per share and valuations
“Valuations typically expand when the Fed cuts in non-recessionary environments,” the strategist said on October 15 in an interview with CNBC. “Despite elevated valuations, we expect P/Es to rise [half a] multiple point.” Golub also noted that a “sharp decline in Fed Funds will likely increase profit margins by 20 [basis points] via lower interest expense.”
Growth Stocks and Investment Strategies
Since the start of 2023, growth stocks have beaten value stocks, and investors expect this trend to continue as the Fed eases monetary policy to steer the economy into a soft landing. Over the past few years, the bull market has affected stocks in various industries differently. Some have rallied, generating significant returns, while others have lagged their core business and earnings, having come under pressure.
The best growth stocks can beat the stock market and give investors sizable returns regardless of the prevailing economic conditions. That has been the case as some have posted robust revenue growth higher than that of most of their peers, and the catalysts indicate that the growth may continue.
Some of the growth stocks that have exploded in value have received a lift from the economy, remaining resilient, while others have benefited from the artificial intelligence frenzy. Even as investors eye opportunities around AI plays, Morning Star’s chief market strategist Dave Sekera, believes it might be time to reconsider that investment strategy.
“In our 3Q 2024 Stock Market Outlook, we reviewed why we thought the AI trade had run its course and investors should pare down positions in growth stocks and reinvest those proceeds into value stocks. As detailed in our August 2024 Outlook, it appears that the great rotation into value stocks began in July—and still has further room to run. According to our valuations, on both an absolute as well as a relative basis, value stocks remain the most attractive category by style,” said Sekera.
Nevertheless, some growth stocks have fallen behind after a few successful years. The stocks are down year to date, having felt the full brunt of high interest rates and inflation. Some have underperformed as investors question their long-term prospects due to soaring competition in their respective sectors. While other growth stocks’ core business has come under pressure amid the proliferation of advanced technology that is eating into their respective core fields
To determine which stocks are the best to purchase right now, investors must distinguish between these assets. In addition to providing a solid foundation, this list of growth stocks may enable you to outperform the market.
Source: Pexels
Our Methodology
To compile our list of the worst-performing growth stocks in 2024, we started by gathering stocks from various growth stock ETFs. We filtered these stocks based on their share price drops, creating a list of twenty companies. Finally, we ranked these companies in ascending order according to their share price drops year to date.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst-Performing Growth Stocks in 2024
10. MongoDB, Inc. (NASDAQ:MDB)
Year to Date Gain as of October 28: -30%
Number of Hedge Fund Holders: 54
MongoDB, Inc. (NASDAQ:MDB) is one of the worst-performing growth stocks in 2024 despite its exposure to the cloud computing sector benefiting from strong demand for cloud solutions amid the artificial intelligence frenzy. The stock is down by about 30% for the year on investors reacting to a slowdown in revenue growth and reduced guidance for the current fiscal year.
The company depends on an increase in new clients using its cloud solutions to strengthen its revenue base. Given that it charges based on how much or often clients use its database platform, it’s been under pressure ever since new customer additions slowed in the fiscal first quarter. Consequently, management was forced to reduce fiscal 2025 revenue guidance from a minimum of $1.9 billion to $1.88 billion. Amid the slow revenue growth, the company has yet to profit.
Nevertheless, MongoDB, Inc. (NASDAQ:MDB) showed signs of improvement in the second quarter as revenue rose 13% to $478.1 million, with income increasing 27% year over year to $339.7 million. However, it posted a wider-than-expected net loss of $54.5 million compared to $37.6 million delivered last year in the same quarter. The lack of profitability continues to raise concerns among the investment community.
As of the second quarter of 2024, 54 hedge funds held positions in MongoDB, Inc. (NASDAQ:MDB). The combined value of these stakes amounted to $879.62 million, reflecting significant interest and investment in the company from the hedge fund community.
Fidelity Growth Strategies Fund stated the following regarding MongoDB, Inc. (NASDAQ:MDB) in its Q2 2024 investor letter:
“An underweight in software & services firm MongoDB, Inc. (NASDAQ:MDB) (-30%) was the next-largest contributor to the fund’s result versus the benchmark. The company’s shares fell sharply in May, after it reported disappointing Q1 results and reduced full-year guidance for its cloud storage platform, MongoDB Atlas.”
9. EPAM Systems, Inc. (NYSE:EPAM)
Year to Date Gain as of October 28: -34.24%
Number of Hedge Fund Holders: 37
EPAM Systems, Inc. (NYSE:EPAM) is a technology company that provides digital platform engineering and software services used by high-tech businesses. The company has been under pressure due to the stock sliding 34.24% for the year.
The selloff, which has affirmed EPAM Systems, Inc. (NYSE:EPAM)’s status as one of the worst-performing growth stocks in 2024, comes on the virtue of the company experiencing reduced sales across its end markets. A slowdown in IT spending has also affected the company’s ability to ramp up sales of its critical software solutions.
Because of its unique digital engineering capabilities, EPAM Systems, Inc. (NYSE:EPAM) saw tremendous growth during the post-pandemic wave of digital transformation. However, due to the geopolitical turmoil brought on by Russia’s invasion of Ukraine, the company encountered significant operational difficulties in fiscal years 2022 and 2023.
Consequently, the global digital platform engineering and software development services provider delivered mixed second-quarter results. Revenue in the quarter was down 2% year over year to $1.15 billion as earnings per share fell 7.2% to $2.45. Even though EPAM Systems, Inc. (NYSE:EPAM) is still very focused on GenAI and cloud technologies, its growth has been hampered by its strategic withdrawal from Russia, resulting in a 0.5% decline in revenue year over year.
EPAM Systems, Inc. (NYSE:EPAM) remains committed to expanding in the high-demand technology sectors of GenAI and cloud services as it continues to explore new growth opportunities. Nevertheless, disruptions in AI automation pose significant risks to traditional job roles, which are expected to affect some of the company’s vital revenue streams.
According to Insider Monkey’s database, 37 hedge fund portfolios held EPAM Systems, Inc. (NYSE:EPAM) at the end of the second quarter, down from 43 in the previous quarter.
Here is what White Falcon Capital Management said about EPAM Systems, Inc. (NYSE:EPAM) in its Q2 2024 investor letter:
“This was a difficult quarter. The negative performance of Endava, EPAM Systems, Inc. (NYSE:EPAM) and Converge could not be offset by strength in Amazon.com, Nu Holdings and precious metal royalty companies. The portfolio was affected by middling earnings and guidance downgrades from our IT services and software positions as corporates prioritize Artificial Intelligence (AI) related IT spending. The market itself had an excellent first half but we must point out that a lot of these gains were led by a few select stocks with the equal weighted S&P 500 up about 5.1% in the first half of the year. Towards the conclusion of this letter, we elaborate on why we perceive the current environment to be similar to the 1970s rather than the late 1990s.
Our portfolio is heavily tilted towards technology companies. Technology, whether in the form of railroads, electricity, radio, motor vehicles, or the internet, has consistently had the potential to disrupt existing industries and create entirely new ones. We have learned through experience that investing becomes marginally easier, and far more profitable, when done in secularly growing and good quality businesses – as long as one pays attention to valuations.
Due to this, we have positioned ourselves in businesses such as EPAM and Endava which are IT services companies that help other corporations implement new technologies. These are good quality businesses with robust economics and are led by their founder CEOs. Currently, AI is the new technology trend and investor emphasis has been on investing in hardware to support AI capabilities. As the necessary hardware becomes more widespread, the focus will likely shift towards creating and optimizing AI applications. EPAM and Endava will benefit from this cycle as they have built a reputation for executing specialized and complicated IT projects. However, AI is still a new technology, and clients need time to identify the best use cases. This has led to a cautious “wait and see” approach from clients, which is currently suppressing demand for IT services. The timing of demand revival in the sector is uncertain and, as we have discussed before, the market hates uncertainty.
We believe the market has overreacted and EPAM and Endava are now trading at historically low multiples of depressed earnings. Eventually, corporations will need the help of EPAM and Endava in order to design, build, test, and implement AI applications. We have added to both stocks and lowered our cost basis, which we anticipate will enhance the overall internal rate of return (IRR) of the portfolio.”
8. StoneCo Ltd. (NASDAQ:STNE)
Year to Date Gain as of October 28: -35.14%
Number of Hedge Fund Holders: 35
StoneCo Ltd. (NASDAQ:STNE) is a tech company that provides financial technology and software. They help merchants and partners do electronic commerce both in stores and online. While it was expected to be one of the best performing amid the digital revolution with increased focus on electronic payments, that has not been the case. The stock is down by 35.14% year to date, emerging as one of the worst-performing growth stocks in 2024.
StoneCo Ltd. (NASDAQ:STNE) is down by more than 80% from its all-time highs. The underperformance in recent months has come from the company’s core business, offering financial services to small and medium-sized businesses under pressure. Its growth hit a wall in the Brazilian economy, and it felt pressure from the high interest rates environment and slower recovery from the pandemic era.
StoneCo Ltd. (NASDAQ:STNE)’s issue was made worse by the fact that it used data from Brazil’s national registry to assess borrowers’ creditworthiness, only to find out later that the data was inaccurate. As a result, the fintech stock price fell more than 90%, its net income suffered greatly, and it suffered enormous losses on its loan portfolio.
Amid the struggles, StoneCo’s core strength lies in its Merchant Services Micro Business, which continues to outperform the overall industry. Consequently, its Total Payment Volume has grown at double the industry rate from $25.9 billion as of 2019 to $61 billion, representing a 28% compound annual growth rate. Likewise, it has grown its client base by 37%, from a net loss of $92 million in 2022 to a profit of $280 million in 2023. Its net income was up by 54.4% in Q2 to R$497.1 million
With an emphasis on improving credit offerings, growing software solutions, and extending payment processing capabilities, StoneCo Ltd. (NASDAQ:STNE) is pursuing a multifaceted growth strategy that affirms its long-term prospects.
Investment management company Ave Maria recently released its fourth quarter 2023 investor letter. Here is what the fund said:
“StoneCo Ltd. (NASDAQ:STNE) provides solutions that enable merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. StoneCo has faced near-term operational challenges because of the pandemic and high levels of inflation in Brazil. The company appears to be moving past these challenges and it appears that the successful integration of the newly acquired software business with its payments business will drive substantial shareholder value longer term.”
7. Enphase Energy, Inc. (NASDAQ:ENPH)
Year to Date Gain as of October 28: -36.12%
Number of Hedge Fund Holders: 42
Enphase Energy, Inc. (NASDAQ:ENPH) is a solar technology company that creates and sells home energy solutions for the solar industry. Even though it specializes in energy storage and power conversion technologies rather than solar panel manufacturing, its growth prospects are frequently impacted by pricing pressure or unfavorable trends affecting the demand for solar panels.
Enphase Energy, Inc. (NASDAQ:ENPH)’s growth prospects have been hampered by an apparent decline in solar demand, particularly in markets where the company depends on large installation volumes. Likewise, the high interest rate environment has made financing more expensive for clean energy companies that rely on borrowing to fund capital-intensive projects. The future of clean energy companies that depend on federal support for renewable energy initiatives is uncertain as polls indicate Donald Trump could assume office next year.
Clean energy firms like Enphase Energy, Inc. (NASDAQ:ENPH) have profited from the current administration’s green energy adoption-promoting policies, like the Inflation Reduction Act (IRA). Future growth prospects for Enphase may be hampered by new risks brought about by a possible change in the political landscape, such as eliminating or reducing incentives.
Consequently, investors have been wary of Enphase Energy, Inc. (NASDAQ:ENPH)’s long-term prospects amid political uncertainty and a high interest rate environment. The stock is already down by about 36.12%, underperforming the overall market and emerging as one of the worst-performing growth stocks in 2024.
6. Snowflake Inc. (NYSE:SNOW)
Year to Date Gain as of October 28: -38.64%
Number of Hedge Fund Holders: 69
Snowflake Inc. (NYSE:SNOW) is a growth company that provides a cloud-based data platform. This platform helps businesses manage and analyze their data more effectively. The data cloud analytics company has seen its sentiments in the market take a hit amid growing concerns about decelerating product revenue growth. While revenue in the second quarter rose 30% year over year to $869 million, it slowed from the 34% growth recorded in the fiscal first quarter.
The slowdown in cloud computing growth is the catalyst behind Snowflake Inc. (NYSE:SNOW)’s 38.64% year-to-date slump, affirming it is one of the worst-performing growth stocks in 2024. Additionally, Snowflake is also battling a widening net loss that hit $317 million or 95 cents a share in the fiscal second quarter from $227 million in the fiscal first quarter. The decelerating growth comes as Snowflake faces stiff competition, especially from Google’s BigQuery, which offers cloud data services.
In addition, Microsoft Fabric’s cloud data analytics platform is also giving Snowflake Inc. (NYSE:SNOW) a run for its money as a solid new rival. The fact that Snowflake’s business model revolves around how much data that customers crunch or store means it will always be under pressure from the tech giants that operate some of the biggest cloud platforms known to be customers’ preferred cloud platforms
Amid the stiff competition affecting growth rates, analysts believe that a new generative artificial intelligence portfolio will help strengthen Snowflake Inc. (NYSE:SNOW)’s competitive edge, consequently resulting in improved topline performance.
Baron Funds, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Snowflake Inc. (NYSE:SNOW) is a leading cloud data platform that is predominantly used for data analytics. The stock declined 16.4% as investors evaluated the impact of a recently announced CEO transition, an investment cycle driven by spend on AI, a cybersecurity incident, and a rapidly changing competitive environment. With GenAI capturing a larger portion of the public discourse, Snowflake’s positioning in the future data stack is under scrutiny by both investors and customers. We believe Sridhar Ramaswamy, the newly appointed CEO, can help the business more efficiently transition toward an AI-first world. While Databricks and other key competitors are presenting strong results, we believe Snowflake’s brand, existing customer base, and accelerating product innovation should allow it to continue to capture share in a relatively large and strategic market. Management continues to describe strong demand trends for its core data analytics, which is also demonstrated by the relatively healthy expansion rates among existing customers while new go-to-market initiatives can help grow the customer base further. Longer term, we remain excited about the Snowflake’s strategic opportunity as the data platform for its customers.”
5. Etsy, Inc. (NASDAQ:ETSY)
Year to Date Gain as of October 28 : -40.01%
Number of Hedge Fund Holders: 36
Etsy, Inc. (NASDAQ:ETSY) is an online company that runs an ecommerce platform. This platform connects sellers with buyers. Because of its unique digital engineering capabilities, it enjoyed tremendous growth during the post-pandemic wave of digital transformation. Fast forward, it is one of the stocks that has been battered by consumer purchasing power, taking a hit amid high inflation and the high interest rate environment. Consequently, the stock has shed more than 40.01% in market value, emerging as one of the worst-performing growth stocks in 2024.
An unfavorable macroeconomic climate, characterized by a slowdown in consumer discretionary spending and growing industry competition from both large-scale marketplaces and niche platforms, is to blame for Etsy, Inc. (NASDAQ:ETSY)’s poor performance.
Additionally, the stock has been under pressure after mixed second-quarter results that raised concerns about the company’s underlying fundamentals. While revenue increased 3%, surpassing estimates at $647.8 million, earning missed estimates on coming in at $0.41 a share. Additionally, the online retailer reported a 2.1% decline in consolidated gross merchandise sales and a 3.2% drop in Etsy, Inc. (NASDAQ:ETSY) marketplace GMS.
The company’s decision to revise its third-quarter gross merchandise sales, driven by stiff competition and mixed consumer trends, highlights the growth challenges facing the online retailer. Additionally, the company anticipates a decline in GMS for the fourth quarter.
The company is already looking ahead and planning to refine its business model. It has started optimizing its apps, websites, marketing, and operations to boost gross merchandise sales. Etsy, Inc. (NASDAQ:ETSY) is also utilizing artificial intelligence tools to help shoppers find the right products on its e-commerce platform, thereby enhancing the shopping experience.
In the second quarter, 36 hedge funds included Etsy, Inc. (NASDAQ:ETSY) in their 13F filings, collectively holding stakes valued at $1.2 billion. Elliott Management was the largest shareholder, holding 4.50 million shares.
4. STMicroelectronics N.V. (NYSE:STM)
Year to Date Gain as of October 28: -41.63%
Number of Hedge Fund Holders: 16
STMicroelectronics (NYSE:STM) is a technology company that designs, develops, and sells semiconductor products. It is turning out to be one of the worst-performing growth stocks in 2024, having a slide 41.63% year to date.
The slide comes on investors reacting to the company facing a downturn amid a reduction in its full-year revenue guidance owing to weak demand for its semiconductor devices in the industrial and automotive sectors. There are already concerns that gross margins could plunge to 16 quarter low, inventory days having surged to their highest level since 2000.
Due to declining automotive demand and unimpressive industrial customer orders, chipmaker STMicroelectronics (NYSE:STM) lowered its full-year revenue and margins guidance for the second time. The company lowered its previous forecast of $14 billion to $15 billion in revenue for 2024 to $13.2 billion to $13.7 billion.
STMicroelectronics (NYSE:STM)’s revised revenue outlook reflects the difficulties in its main markets, which calls for further declines. The company’s financial performance may be impacted by this pessimistic forecast, which comes amid a larger backdrop of inventory oversupply and declining demand.
STMicroelectronics (NYSE:STM) was part of 16 hedge funds’ portfolios that are tracked by Insider Monkey in the second quarter with a total stake value of $231.780 million. D E Shaw is the biggest shareholder in the company and has a position worth $96.072 million as of Q2.
3. UiPath Inc. (NYSE:PATH)
Year to Date Gain as of October 28: -48.11%
Number of Hedge Fund Holders: 29
UiPath Inc. (NYSE: PATH) is a technology company that provides an end-to-end automation platform with a range of robotic process automation (RPA) solutions. Its solutions are mostly used to build, manage, run and govern automation within organizations. As a leading provider of robotic process automation, the company has been under pressure on concerns that RPA tools face an uncertain future amid proliferation of AI-based no-code tools that offer similar capabilities.
While the stock has shed about 48.11% in market value, its long-term prospects remain intact as it continues to use artificial intelligence tools to enhance its automation capabilities. The company is already leveraging artificial intelligence to strengthen task mining, document understanding and AI center orchestration.
A move by UiPath Inc. (NYSE: PATH) to reduce its full-year annual recurring revenue for fiscal 2025 to between $1.665 billion and $1.670 billion, below expectations of $1.725 billion and $1.730 billion, has also hurt the stock’s sentiments. Nevertheless, the company ended the second quarter with an annual recurring revenue of $1.551 billion, representing a 19% year-over-year increase.
Customers with annual recurring revenues (ARR) of $100,000 or more increased from 1,930 to 2,163 in the second quarter of fiscal 2025. Additionally, customers with ARRs of $1 million or more saw a 15.3% increase over the same quarter last year. Additionally, the AI automation company boasts of an attractive price to free cash flow of 22, affirming it is inexpensive for a software business that is growing at an impressive rate.
According to Insider Monkey’s analysis of hedge fund portfolios from Q2 2024, 29 out of 912 hedge funds held shares in UiPath Inc. (NYSE: PATH). The largest shareholder was Catherine D. Wood’s ARK Investment Management, with holdings valued at $377.19 million.
2. ACADIA Pharmaceuticals Inc (NASDAQ:ACAD)
Year to Date Gain as of October 28: -53.53%
Number of Hedge Fund Holders: 36
ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is a biotechnology giant specializing in developing and commercializing medicines to treat unmet medical needs. While the stock is down by about 53% year to date, the underperformance comes on the company facing some headwinds with the launch of its treatment for Rett syndrome, DAYBUE.
The drug has faced significant challenges, with its sales dropping 11% sequentially in the second quarter to $85 million in sales from $90 million expected. The significant miss came on fewer than expected patients starting treatment. Consequently, ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) has been forced to cut its full-year revenue estimates for the drug to between $340 million and $370 million, down by $40 million from the previous guidance.
Despite the significant miss with DAYBUE, ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) delivered solid second-quarter results, with revenues increasing 46% year over year to $242 million. The increase was fuelled mainly by NUPLAZID, the company’s lead candidate for Parkinson’s disease Psychosis. Sales of NUPLAZID have surpassed projections and have made a substantial contribution to ACADIA’s cash flow, demonstrating the company’s continued strength.
Additionally, ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)’s long-term prospects, despite being one of the worst-performing growth stocks in 2024, remain intact owing to DAYBUE’s long-term prospects with exposure to a market worth over $1 billion. Additionally, about 900 patients already use the drug, an estimated 9000, affirming the substantial room for growth. The stock trades at a great discount with a price-to-earnings multiple of 18 compared to the industry average of 33.
A total of 36 hedge funds reported holding shares of ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) in Q2 2024. Baker Bros. Advisors remained the largest hedge fund holder with 42.88 million shares worth $696.76 million, comprising 8.9% of their portfolio.
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.
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