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Bull Of The Day: Five9 (FIVN)

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The leading cloud-based contact center solution company is lining up to be a buy. Five9 (FIVN - Free Report) continues to impress investors and analysts alike. Sell-side analysts have been increasing bullish on these shares propelling FIVN into a Zacks Rank #1 (Strong Buy).

Customer relations are vital to any business and in this increasingly digitalized age its becoming progressively more difficult to keep up with customer demands. Five9 has made this imperative but demanding business function much more manageable through its cloud-based product offering.

The Business

Five9’s omnichannel engagement platform provides customer service, increases sales performance and advances a firm’s operational excellence, ultimately cutting cost and creating efficiencies. The company’s interface “is designed to enable customers to seamlessly engage through voice, video, website, mobile, chat, email, click-to-call, callback, social and messaging,” according to the 2018 annual report.

Five9 cloud-based solution allows companies of any size to optimize their contact centers no matter the infrastructure.

Five9 has been chasing profitability since they began, but have experienced a topline that has been proliferating over 20% year-over-year and consistent quarter-over-quarter expansion. The firm's reoccurring revenue stream is a driving feature that makes this stock so attractive. Locked in long-term revenue combined with consistent growth figures allows me and other investors to be comfortable with larger than normal valuation multiples.

Current market penetration is 10-15%, and with the total accessible market being valued at $24 billion, according to the firm’s latest annual report. Five9 has become a leader in a niche market with proven demand and this demand will only grow as enterprises become more digitalized.

Adaptation of CRM has driven growth for smart contact centers that can effectively manage customer service, sales, and marketing. Five9 allows for easy integration of CRM and customer service platforms like Salesforce (CRM - Free Report) , Oracle (ORCL - Free Report) , and Zendesk (ZEN - Free Report) . Five9 is a supplementary solution with these other large enterprise cloud platforms, meaning that as the CRM space grows and enterprise cloud penetration increases, the opportunity for Five9 will expand.

Performance & Valuation

FIVN has been on a run over the past 5 years with shareholder returns hitting close to 1000%. FIVN just went from a small to mid-cap (passing the 2 company in the past 52-weeks) and investors are beginning to see the opportunity in this niche cloud player.

So far in 2019, FIVN is up 30% outperforming the cloud category and the broader equity market. With this firm’s recent share price run-up came a valuation surge. FIVN’s P/S has grown from 2x in 2015 to over 11x that the stock is demonstrating today.

Five9, Inc. Price and Consensus

Five9, Inc. Price and Consensus

Five9, Inc. price-consensus-chart | Five9, Inc. Quote

The valuation is a bit large, but its comes from Five9’s continued proven business model, and ability to meet and satisfy its growing demand.

Take Away

Five9 is the market leader in cloud-based contact center solutions and facilitates more than 5 billion calls annually. It has marked its ground in the niche but fast-growing market. As more enterprises digitalize their customer interactions the demand for Five9 will only expand.

I don’t love FIVN’s current valuation, but this firm is still in its early growth stage with a sizable amount of potential, so its high multiples may be justified. This stock has an ample amount of long-term potential and would make a good addition to your cloud portfolio.


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