4. Five9 (NASDAQ:FIVN)
Forward P/E Ratio as of October 3: 12.43
Upside Potential: 61.57%
Number of Hedge Fund Holders: 34
Five9 (NASDAQ:FIVN) provides cloud contact center software for businesses looking to enhance customer engagement. The platform enables seamless communication through various channels, including phone, email, and social media.
Five9 (NASDAQ:FIVN) focuses on improving customer experience through automation and AI. The company’s AI and automation offerings are expected to play a significant role in its future growth and profitability. Management noted that these offerings have higher gross margins than its traditional contact center software, and they are expected to contribute to the company’s revenue growth in the future. Five9’s (NASDAQ:FIVN) ability to offer a comprehensive suite of contact center software solutions, including AI and automation, is a key differentiator in the market and is expected to drive its growth and profitability. Five9 (NASDAQ:FIVN) recently announced a major client win, which is expected to contribute $50 million in annual recurring revenue (ARR) for the next few years.
Additionally, in Q1, Five9’s (NASDAQ:FIVN) earnings report showed an EBITDA margin of 15.2%, which was 110 basis points above the consensus estimate. This margin expansion is a positive sign for the company’s profitability, and it is expected to continue to improve in the future. The company aims to achieve an EBITDA margin of 23% or higher by 2027 and has multiple levers to achieve this goal, including economies of scale, an increase in subscription revenue, and the growth of its AI and automation offerings. Brown Capital Management stated the following regarding Five9. (NASDAQ:FIVN) in their Q2 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.”
Five9 (NASDAQ:FIVN) strong growth prospects demonstrate its ability to grow as more businesses adopt cloud-based communication solutions.
