Yesterday, Piper Sandler maintained its Overweight rating on Five9 (NASDAQ: FIVN) but slashed the price target to $35 from $47, signaling concerns over the company’s ability to execute amidst economic challenges.
This new target implies a modest 22% upside from Five9’s current price, a sharp drop from prior expectations.
The adjustment follows a series of setbacks for the cloud-based contact center provider, including reduced revenue guidance, workforce layoffs, and competitive pressures.
Five9 has struggled with weaker booking trends, further compounded by a 60% year-to-date stock decline, according to Piper Sandler analysts led by James Fish.
Other firms are also not optimistic
Piper Sandler isn’t alone in re-evaluating Five9’s potential.
Earlier in August, Baird downgraded the stock to Neutral and significantly reduced its price target to $40 from $90.
Similarly, Needham lowered its target to $48 from $90, citing concerns over growth visibility and increasing competition from industry giants like Microsoft, Amazon, and Google.
The downgrade came after Five9’s second-quarter earnings report, where despite beating expectations with revenue of $252 million, the company slashed its full-year revenue guidance to $1.015 billion, down from a prior $1.055 billion.
Layoffs & acqusition
Recent developments for Five9 reflect a mixed bag of strategic decisions. The company recently announced layoffs impacting 7% of its workforce, as part of its efforts to drive shareholder value.
This move is expected to incur restructuring costs of up to $15 million but should deliver cost savings in the upcoming quarters.
Five9’s management has also hinted at potential strategic alternatives, including further activist involvement, a possible merger, or even a strategic takeout by larger players like Cisco or Salesforce.
Analysts at Piper Sandler see these alternatives as potential catalysts, but with no immediate timeline for action.
Along with its Q2 results announcement, Five9 also announced its planned acquisition of Acqueon, a real-time revenue execution platform.
This acquisition is expected to enhance Five9’s AI-powered CX platform and provide deeper integration into customer engagement strategies across marketing, sales, and service touchpoints.
The deal, set to close in the second half of 2024, aligns with Five9’s long-term goal of becoming a leading orchestration engine in the customer journey.
However, the market response to this acquisition was lukewarm, with shares dropping over 12% after the announcement, reflecting broader concerns over Five9’s immediate growth trajectory.
Lower guidance dissapoints
Five9’s second-quarter earnings report highlighted a 13.1% year-over-year revenue growth, beating expectations, but the company’s lowered guidance for the rest of 2024 was a disappointment.
The firm’s adjusted EBITDA for Q2 came in at $41.8 million, with a margin of 16.6%, down slightly from 18.6% in the prior year.
While Five9 managed to surpass $1 billion in annual revenue run rate, the firm faces pressure to improve profitability amid shrinking margins and rising competition.
Investors are now focused on whether the company’s cost-saving initiatives and AI-driven solutions can offset these headwinds.
Five9’s operating cash flow for Q2 was $19.9 million, compared to $21.9 million a year ago.
Despite these lower figures, the firm continues to push investments in its AI Genius Suite, positioning itself to capitalize on the ongoing shift toward automation in customer service.
Five9’s 21% growth in long-term enterprise subscription revenue reflects its potential in the upmarket segment, but questions remain about its ability to maintain this pace in a tightening economy.
Valuation
The company’s valuation also reflects this uncertainty. Five9 currently trades at 12.5 times its expected earnings for the next twelve months, which according to analysts is reasonable when compared to its anticipated earnings growth of 10.7% for FY2024.
The stock’s price-to-earnings (P/E) ratio aligns with its earnings outlook, but the company’s 11.5% revenue growth forecast for this year lags behind its historical average, leading some analysts to remain cautious.
Now, let’s examine what the charts indicate about Five9’s stock price trajectory, where technical signals could offer more clues on whether it’s time to buy, hold, or sell.
Extremely weak across timeframes
Although Five9’s stock has been in a downtrend since August 2021 when it made an all-time high above $211, it found some stability in 2023 when it traded in a $50-$90 range for most of that year.
Source: TradingView
However, that stability didn’t last with the stock falling 64% so far this year. Currently, the stock is displaying extreme weakness across time frames having recently made its 5-year low at $26.60.
Taking these factors into account, investors who have a bullish outlook on Five must avoid going long at current levels. A long position should only be considered once the stock stabilizes near current levels and doesn’t make any new lows in the coming weeks.
Traders who are bearish on the stock but haven’t shorted it must wait for a bounce back closer to $32 levels to initiate fresh short positions. If the stock reaches that level, they can initiate a short position with a stop loss at $38.2.
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