Five9: No-Moat CCaaS Provider Benefits From Attractive Industry Tailwinds  

Equity Analyst

Emma Williams

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’s CCaaS offering, Virtual Contact Center, or VCC, supports channel-agnostic customer engagement across all digital channels (email, SMS, voice, social media and so on), workforce management solutions, and artificial intelligence-based analytics and automation tools such as agent prompts and self-service chatbots. The sophisticated platform is tightly integrated with tangential business applications through out-of-the-box integrations, and custom-built integrations to meet clients' unique needs. In practice, when the VCC platform receives inbound communication, integrations to business applications pull a complete customer history and relevant data, enabling efficient, targeted customer engagement and first contact resolution. 

As with cloud-based CCaaS peers, Five9 benefits from an attractive contact center cloud transition opportunity. The contact center industry has been a relative laggard in the cloud transition, with only about 20% of the estimated 16 million global contact center agents using cloud software as of 2022. Amid increasing appetite for 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.

Business Strategy & Outlook

We assign Five9 a no moat rating. While we believe the company benefits from high customer switching costs among its existing customer base and is executing well on a land-and-expand strategy, we think Five9 faces intensifying competition for new customer wins. The firm has generated uneven returns on invested capital in recent years, and rising competitive pressure leaves us cautious about whether Five9 can generate consistent economic profits in the future. If Five9 can effectively fend off competitors, leverage investments in product innovation to win sticky enterprise customers, and rapidly scale operations in coming years, we could see the company eventually earning a narrow moat rating. 

We believe CCaaS providers like Five9 benefit from high customer switching costs among its existing client base due to the strategic importance of customer service operations, and deep integrations with related business applications. Software, in general, tends to have high switching costs as software system installations are time consuming, meticulous processes that generally require thorough upfront verification, have many touchpoints throughout an organization, are linked to various business applications, and often have new processes built upon them. We think the shift to the cloud has likely reduced implementation costs somewhat, but this is offset by the ability to provide a much larger range of bundled products through the cloud, such as analytics and artificial intelligence. 

Alongside monetary costs, switching CCaaS providers could lead to operational disruptions and inefficiencies such as having to train employees on the new system, reintegrate with existing software, and the potential loss of customer data. Together, these disruptions may lead to subpar customer experiences, and costly customer defections. We believe the relatively slow industry transition to more cost effective, and functionality rich cloud alternatives is reflective of the complexity of contact center operations, and the associated switching costs. 

While Five9 does not report gross client retention, the firm boasts strong dollar based net retention (DBNR) averaging about 110-120% in recent years, up from 100% in 2014 (and on par with narrow moat NICE), driven by year on year seat growth per client and greater module attachment. As of 2022, Five9 generated 86% of revenue from enterprise customers (150 to 500 seats), up from 60% in 2014. We expect both DBNR and client retention to improve over time as Five9 continues to skew toward sticky enterprise customers and realizes greater module attachment, fueled by the ongoing enterprise transition to cloud solutions. 

However, Five9 faces rising competition for new client wins from other cloud CCaaS providers and industry titans vying for a slice of the massive contact center cloud transition opportunity. The primary cloud CCaaS competitors offering comparable out of the box solutions include NICE with its CXOne platform, Genesys (privately owned) with its Cloud CX platform, and emerging contact center offerings from Zoom and Salesforce. NICE CXOne and Genesys Cloud CX have been market leaders in the CCaaS space for several years, whereas Zoom and Salesforce’s offerings are relatively new, launching in 2022. As of 2022, NICE serves around 1 million customer service agents on the cloud, or about 33% of the cloud CCaaS market by agents, relative to Five9’s 440 thousand customer service agents, or about 15% share. Five9 also competes with build it yourself CCaaS toolkit solutions like Twilio Flex, and Amazon Connect. 

While we anticipate multiple providers to benefit from the contact center cloud transition, we expect Five9 will need to continue to aggressively invest in product innovation and go to market efforts to remain competitive and achieve meaningful scale, weighing on profitability upside in the near term. In recent years, Five9’s efforts to expand product functionality via acquisitions of AI, automation and workforce optimization technology, and investment in improving the reliability and scalability of the platform to attract enterprise customers and support international growth have dampened ROICs to below our estimated WACC. Assuming Five9 continues to attract new sticky enterprise clients at a healthy rate (management quotes a 75% win rate versus NICE and Genesys), we expect these investments to eventually bear fruit as the firm achieves meaningful scale-based leverage. Nonetheless, given intensifying competition for new clients, comparable product functionality among peers and weak recent returns on invested capital, we lack confidence awarding the firm a moat rating.

None

Economic Moat

Five9

Five9, Inc. engages in the provision of cloud software for contact centers. It specializes in omnichannel routing, analytics, workforce organization and reporting. The company was founded in December 2001 and is headquartered in San Ramon, CA.

Earnings data Q4 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

FS KKR Capital Corp

Lyft

Playtika Holding

TripAdvisor

We have chosen five mid-cap companies that will report third-quarter earnings results this week. These are: FIVN, PLTK, TRIP, FSK and LYFT.

5 Mid Cap Stocks to Buy Ahead of Q3 Earnings Results This Week

Five9 (FIVN) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Should You Buy Five9 (FIVN) Ahead of Earnings?

Five9 (FIVN) is technically in oversold territory now, so the heavy selling pressure might have exhausted. This along with strong agreement among Wall Street analysts in raising earnings estimates could lead to a trend reversal for the stock.

After Plunging 31.8% in 4 Weeks, Here's Why the Trend Might Reverse for Five9 (FIVN)

Five9 (FIVN) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Five9 (FIVN) Reports Next Week: Wall Street Expects Earnings Growth

Airbnb

Fortinet

Trade Desk

ZoomInfo Technologies

Here we pick five tech stocks - Airbnb (ABNB), Fortinet (FTNT), Five9 (FIVN), The Trade Desk (TTD) and ZoomInfo (ZI) - which are likely to pull off positive earnings surprises in third-quarter 2022.

5 Technology Stocks Poised to Beat Earnings Estimates in Q3

Five9 (FIVN) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Will Five9 (FIVN) Beat Estimates Again in Its Next Earnings Report?

Five9 (FIVN) witnesses a hammer chart pattern, indicating support found by the stock after losing some value lately. This coupled with an upward trend in earnings estimate revisions could mean a trend reversal for the stock in the near term.

Here's Why Five9 (FIVN) Looks Ripe for Bottom Fishing

SentinelOne

Five9 shares plummeted on the sudden departure of the company's CEO, and the rest of the cloud sector fell as investors continued rotating out of risk.

Cloud stocks just wrapped up their worst week since January, led by plunge in Five9 and SentinelOne

Five9 (FIVN) has been upgraded to a Zacks Rank #2 (Buy), reflecting growing optimism about the company's earnings prospects. This might drive the stock higher in the near term.

Five9 (FIVN) Upgraded to Buy: What Does It Mean for the Stock?

The heavy selling pressure might have exhausted for Five9 (FIVN) as it is technically in oversold territory now. In addition to this technical measure, strong agreement among Wall Street analysts in revising earnings estimates higher indicates that the stock is ripe for a trend reversal.

Down 36.6% in 4 Weeks, Here's Why You Should You Buy the Dip in Five9 (FIVN)

We recommended a nice way to build a position in Five9 recently and got caught playing too much defense. The Q3 results should be very strong and much better than expected.

Five9 Has Been Annihilated

It's a rough day in the markets as the S&P 500, Nasdaq and other top U.S. stock indices continue to tip lower. However, it's particularly tough for Five9 (NASDAQ: FIVN ) investors.

Why Is Five9 (FIVN) Stock Down 20% Today?

Shares of cloud software provider Five9 fell 22% Monday after CEO Rowan Trollope said he's stepping down to take the helm of a pre-IPO company.

Five9 shares plunge more than 20% after CEO announces resignation

Later this year, Rowan Trollope is stepping down from his CEO position. But there's good news, too.

Why Five9 Stock Tanked on Monday

Five9 stock dived after the company said Chief Executive Rowan Trollope will step down from his post to lead a privately held firm. The post Five9 Falls As Chief Executive Departs To Lead Private Company appeared first on Investor's Business Daily.

Five9 Falls As Chief Executive Departs To Lead Private Company

SAN RAMON, Calif.--(BUSINESS WIRE)--Five9, Inc. (Nasdaq: FIVN), a leading provider of the intelligent cloud contact center software, today provided details for its third quarter 2022 financial results conference call on Monday, November 7, 2022 at 4:30 p.m. Eastern Time. Participants may register for the Zoom Video webinar at 4:30 p.m. Eastern Time on November 7, 2022 by clicking here. A replay will be available approximately two hours after the conclusion of the live event and will remain up f

Five9 to Report Third Quarter 2022 Financial Results on November 7, 2022

SAN RAMON, Calif.--(BUSINESS WIRE)--Five9, Inc. (NASDAQ:FIVN), a leading provider of the intelligent cloud contact center software, announced today that Chief Executive Officer Rowan Trollope has resigned as CEO and from the Board of Directors and accepted another role as CEO of a privately held pre-IPO company outside of the CCaaS space. Mike Burkland, long-time Chairman and former CEO of Five9, has been appointed to the CEO position. This transition will be effective on November 28, 2022. “I'

Five9 Announces Leadership Transition

SCOTTSDALE, Ariz.--(BUSINESS WIRE)---- $FIVN--Nextiva (www.nextiva.com), a leading communications, team collaboration, and customer engagement company, today announced that they have partnered with the Florida Panthers to serve as the team's official communications partner. Nextiva's powerful business communications system has been chosen to level up the Panthers' phone service, which supports the best fans in the NHL as they buy tickets, purchase Panthers gear, and attend games. Before Nextiva, the Flor

Florida Panthers Team Up with Nextiva as Official Communications Partner

SAN RAMON, Calif.--(BUSINESS WIRE)--Five9 (NASDAQ: FIVN) today announced the availability of Five9 Service Cloud Voice for Partner Telephony, the latest evolution of its integration with Salesforce. The integration with Service Cloud Voice meets the growing demand to connect the broader customer experience ecosystem, enhance the contact center experience, and improve agents and supervisors access to rich data, including CRM and omnichannel insights. Customers can now connect certified telephony

Five9 Announces Availability of Service Cloud Voice for Partner Telephony on Salesforce AppExchange

SCOTTSDALE, Ariz.--(BUSINESS WIRE)---- $FIVN--Nextiva today announced that Alan Black, former CFO of Zendesk and founder of Surfspray Capital, and Robert (Bob) Beauchamp, former chairman and CEO of BMC Software, have been appointed to the company's board of directors. The new board members bring decades of financial and enterprise software leadership to their roles at Nextiva. “As we look to build the future of business communications and productivity, we welcome Bob and Alan to Nextiva's board of direct

Former Zendesk CFO and Former BMC Software CEO Join Nextiva Board of Directors

SAN RAMON, Calif.--(BUSINESS WIRE)--Five9, Inc. (NASDAQ: FIVN), a leading provider of the intelligent cloud contact center, today announced the results of a commissioned Forrester Consulting Total Economic Impact™ (TEI) study, revealing enterprises deploying Five9 solutions can realize a return on investment (ROI) of 213%. Forrester interviewed four Five9 enterprise customers in multiple industries to understand the benefits, costs, and risks of moving on-premises contact centers to the cloud a

Independent Study Finds Enterprises Can Realize A 213% Return on Investment when deploying Five9 Intelligent Cloud Contact Center

Five9's solid growth in revenues and margins remain strong. Stock is priced quite high on traditional valuation metrics but operation growth looks to justify this.

Five9: We Waited A Long Time For This

Five9, Inc. has historically delivered consistent revenue growth and financial results. The user base is extremely sticky and management continues to maintain outstanding customer retention rates.

Five9: Attractive Secular SaaS Growth Play

50% pullback in shares of cloud-based contact center software provider Five9 presents an opportunity for long term investors.

Is Five9 Stock a Buy Now?

SAN RAMON, Calif.--(BUSINESS WIRE)--Five9, Inc. (NASDAQ: FIVN), announces the results of its 2022 International Customer Service Index (CSI) Business Decision Makers Survey.

News for Five9 Stock (FIVN)