On Thursday, Deutsche Bank adjusted its outlook on Five9, Inc (NASDAQ:FIVN), a provider of cloud contact center software, by lowering the price target to $65 from the previous $80, while still maintaining a Buy rating on the stock. The price target revision comes amid concerns about the company's revenue growth and the broader impact of competitive and macroeconomic challenges on the sector.
The firm highlighted that the main issue affecting the stock is the deceleration in revenue growth and the uncertainty this creates for meeting the 2024 revenue targets. The analyst noted that any clarity following the second quarter results could be beneficial for the stock, especially considering the current valuation, which presents a more favorable risk/reward profile.
Five9 shares are trading at just over 20 times the estimated 2025 price to free cash flow (P/FCF) and 14 times price to earnings (P/E), despite projections of a 40% compound annual growth rate (CAGR) in free cash flow per share from 2025 to 2028. The new 12-month price target of $65 implies a 33x multiple of the projected 2025 P/FCF.
The skepticism around Five9's ability to meet its 2024 revenue goals stems from the current economic climate, particularly in the Consumer/Retail sector, which is Five9's third-largest vertical. This has led to a slowdown in growth within the existing customer base, with the dollar-based retention rate dropping to 109% last quarter from 114% a year ago.
With targets indicating a 16% year-over-year growth and a 13% growth in the first quarter, there is a considerable doubt among investors about the company's capacity to re-accelerate growth in the second half of the year and ultimately reach its goals.
Despite these challenges, the analyst remains optimistic about Five9's market position, citing a strong deal pipeline and new logo growth, particularly through winning shares from Cisco (NASDAQ:CSCO) and Avaya, the two incumbents in the space. The company's performance in the upcoming quarters will be closely watched as an indicator of its ability to navigate the headwinds and achieve its long-term financial targets.
In other recent news, Five9, a cloud contact center provider, has seen a price target reduction by Wells Fargo, despite maintaining an Overweight rating. This adjustment follows an evaluation of Five9's near-term prospects, with the expectation of re-accelerated revenue growth in 2024.
In addition, Five9 has announced an enhanced collaboration with Salesforce (NYSE:CRM), aimed at improving customer experiences with AI-powered solutions. This integration is expected to assist agents in servicing customer requests more effectively.
In terms of financials, Five9 reported a 20% year-over-year growth in subscription revenue and a 13% increase in overall revenue, which reached $247 million in the first quarter. The company projects a revenue of $244.5 million for the second quarter, and full-year 2024 revenue is expected to reach $1.055 billion.
InvestingPro Insights
As Five9, Inc (NASDAQ:FIVN) navigates through a challenging economic landscape, real-time data from InvestingPro provides a nuanced view of the company's financial health and market performance. With a current Market Cap of $2.92 billion, Five9 is trading at a Price / Book ratio of 6.22, which indicates that the market values the company significantly higher than its book value. Additionally, the company has experienced a Revenue Growth of 15.29% over the last twelve months as of Q1 2024, signaling that despite macroeconomic pressures, Five9 has managed to increase its revenue.
InvestingPro Tips suggest that analysts are taking a cautious stance, with 7 analysts revising their earnings downwards for the upcoming period, reflecting concerns over the company's future earnings potential. However, it's noteworthy that the company's liquid assets exceed its short-term obligations, which may provide some financial flexibility in the near term. Moreover, while the stock has fared poorly over the last month, with a 1 Month Price Total Return of -18.59%, analysts predict that the company will be profitable this year. For readers interested in a deeper analysis, there are additional tips available on InvestingPro, which can be accessed with the promo code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
The upcoming earnings date on July 24, 2024, will be pivotal for investors to assess whether Five9 can align with analyst expectations and achieve its financial targets amidst the current slowdown in revenue growth. With the stock currently trading near its 52-week low, investors are keenly watching for signs of a turnaround that could offer a more attractive entry point.
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