Five9 Inc. (FIVN, $115.79): “Five9 Isn’t Calling it a Day”
By: Owen Filbin, AIM Student at Marquette
University
Disclosure: The AIM International Equity Fund currently holds this position. This article was
written by myself, and it expresses my own opinions. I am not receiving
compensation for it, and I have no business relationship with any company whose
stock is mentioned in this article.
Summary
- Five9
Inc. (NASDAQ: FIVN) is
a leader in providing cloud software for contact centers, leveraging their
expertise in delivering real-time customer data to their clients. They
derive almost all of their revenue in the United States (~90%), as well as
in China and various European countries.
- FIVN plans to expand their exposure in
this market by delivering their Intellectual Virtual Assistant (IVA)
offering, positioning them to be the first player in the industry with
this service.
- FIVN’s strong growth history stems
from their 93% recurring revenue and 66% YoY increase in customer
bookings. FIVN has also entered into new markets internationally.
- Management has targeted new, larger
contracts to boost revenues. This initiative has led to margin expansion and
more than $1 million in annual recurring revenue.
- FIVN was founded in 2001 and is
headquartered in San Ramon, CA. Rowan Trollope currently serves as CEO and
director.
Key points: FIVN strives to
enhance customer call productivity through their integrated cloud capabilities,
as well as expertise in implementing tailored solutions based on client needs. Their
offerings are scalable, which is an attractive perk nowadays with SaaS and
similar models gaining traction in these markets. FIVN has
experienced a 5-year sales CAGR of roughly 30% and plans to aggressively grow
their top line through the next five fiscal years. Their moat in the contact
center cloud industry, coupled with international market expansion positions
the company well to achieve and surpass their intended revenue goals. FIVN’s
core driver of revenue is measured in bookings, something they have handled
well in the past 3 FY. In 2021 EMEA and LATAM bookings increased at a 167% and
128% CAGR YoY, respectively.
FIVN’s new core offering, Intellectual Virtual
Assistant (IVA), is a one of a kind technology that FIVN is bringing to market
before their competitors. This product was made possible due to their
acquisition of Inference Solutions, an IVA provider. Since FY21, usage for this
offering has grown 180%, measured on how many minutes per week the software is
handling calls.
Based on a recent Five9 publication, main uses for
this software include password resets, authentication, appointment bookings,
balance updates, and status updates. As demonstrated, firms across all sectors
and industries have benefitted from this service. Key notable milestones
include surpassing 80 million calls, mainly health care providers like Covid
Clinic, as well as other health insurance and clinics
What has the stock done lately?
FIVN
was recently added to the Marquette AIM Small Cap fund. Since this addition,
the stock has increased roughly 5%, with attractive drivers moving forward. FIVN
boasts strong historical revenue growth, as well as future growth projections
from management that make FIVN appealing moving forward.
Past Year Performance: FINV is trading
well below its YTD pattern. Since Q1 FY21, FINV is down about 35%, and reached
its 52 WK low in March 2022. Since then, the stock has climbed 26%, signaling
an adjustment back to its appropriate valuation. Firm initiatives to capture larger contracts which drive their
bookings and revenue, as well as their rollout of their IVA technology is driving
the share price back to historical trading prices.
My Takeaway
FIVN
was pitched with a projected price target of $161.28, and is currently trading
towards the bottom of its 52 WK L-H. The current state of the market, specifically
within this sector, underscores the discrepancy in valuation. As FIVN
recognizes the benefits from their newly released IVA technology, and as
domestic & international bookings increase, it will be interesting to see
how FIVN reacts. Additionally, words like ‘moat’ and ‘first to the industry’ being
tossed around by management is an attractive signal moving forward. Strong YoY
bookings & recurring revenue, and the expansion of these offerings into
international markets is an additional tailwind to consider for this firm
heading into FY22.
