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How Will Billion-Dollar Break-Up Affect Five9?

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Call center software firm Five9 (FIVN) is trending in the Wall Street universe, having become known for blowing Zoom’s (ZM) chance of stepping into the Contact Center as a Service (CCaaS) market. Last week, Five9 investors unanimously rejected Zoom’s $14.7 billion bid to acquire Five9, sending Zoom to the hot seat with concerns over its slowing growth prospects.

Management at Five9 noted that they are as excited to continue as a standalone company as they were at the prospect of being acquired by Zoom. It also noted that the previously existing partnership between the two companies will remain as is.

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This was not a totally surprising development, given the recommendation for a downvote that came from the proxy advisory firm Institutional Shareholder Service, several weeks ago. (See Five9 stock chart on TipRanks)

Moreover, the proposed acquisition deal was troubled from the beginning. Based on a license application that arose from the proposed deal, the Department of Justice solicited an investigation into Zoom’s ties with China and its possible legal implications.

On September 30, Wells Fargo analyst Michael Turrin reaffirmed his long-term growth expectations of Five9 and upgraded to a Buy rating on the stock, with a price target of $200.

Despite mixed near-term headwinds, including tougher comparables and reduced perceived M&A premium, Turrin remains confident about the company. He appreciates Five9's secular shift towards a cloud-based contact center technology, and he is also upbeat about Five9’s competitive strength.

“We think the $30 billion plus contact center software market is being transformed - resulting from recent events, including a forced move towards remote work amidst a significant spike in inbound customer volume, which we think is increasingly likely to render on-premise based contact center cubicle farms of the past mostly obsolete,” said Turrin, adding that Five9 is among the “best positioned pure-play cloud vendors standing to benefit."

Notably, the Five9 management provided a five-year plan, aiming to achieve a minimum of 30% revenue CAGR, hitting $2.5 billion in 2026 at a 24% EBITDA margin. This reiterated Turrin’s confidence that Five9 is well-positioned to execute better than at pre-pandemic levels.

Turrin noted that the contact center software market constitutes about 20% of the cloud market today. Importantly, this percentage has the potential to grow to more than 50% within the next 3-5 years.

Wall Street is cautiously optimistic, with a consensus rating of Moderate Buy, based on 10 Buys and 6 Holds. The average Five9 price target of $201.19 indicates an upside potential of 28.4%.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.

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