AI, Salesforce And Google Cloud Will Define Future Success

Key Takeaways

• Strategic integration and partnerships with key industry players aim to boost innovation, customer acquisition, and revenue growth.
  
• Investments in AI and R&D set Five9 to optimize margins and capitalize on the expanding CX market.
  
• Macroeconomic challenges, currency risks, executive transitions, and AI adoption uncertainties could adversely impact Five9's revenue growth, profitability, and financial stability.

Catalysts

Provides intelligent cloud software for contact centers in the United States and internationally.

• Five9's leadership in AI for customer experience, with AI revenue growing to 9% of enterprise subscription revenue and bookings growth of 50% year-over-year, suggests potential future growth in revenue from AI-driven services.
  
• Integration and partnerships with major players like Salesforce, Google Cloud, and Microsoft Teams are expected to drive product innovation and increase customer acquisition, potentially boosting revenue.
  
• The AI-driven customer experience (CX) market is expanding, and Five9's comprehensive AI suite combined with their expertise positions them to capitalize on this trend, likely impacting top-line growth and earnings.
  
• Investments in R&D, particularly in AI, and enhancements to sales operations to target $1 million-plus ARR deals, suggest that Five9 is strategically positioned to optimize net margins by leveraging AI efficiencies.
  
• Partnerships with AI ecosystem companies and access to emerging technologies through engine-agnostic strategies could future-proof Five9's offerings, enhancing competitive advantage and potentially improving net margins and earnings growth.

Five9 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Five9's revenue will grow by 10.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.2% today to 6.7% in 3 years time.
• Analysts expect earnings to reach $93.4 million (and earnings per share of $1.05) by about April 2028, up from $-12.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $104.7 million in earnings, and the most bearish expecting $73.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 54.4x on those 2028 earnings, up from -132.6x today. This future PE is greater than the current PE for the US Software industry at 29.6x.
• Analysts expect the number of shares outstanding to grow by 2.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.59%, as per the Simply Wall St company report.

Five9 Future Earnings Per Share Growth

Risks

• The macroeconomic challenges, such as ongoing inflation, high interest rates, and uncertainties around consumer spending, could adversely impact Five9’s revenue growth and profitability.
  
• Currency exchange rate fluctuations and lower growth rates within their installed base of customers are risks noted that may affect Five9's revenue and earnings.
  
• The company has noted substantial risks and uncertainties around their forward-looking statements, indicating a risk that actual results could differ significantly from predictions, potentially impacting earnings.
  
• Five9's reliance on the success of AI-driven revenue and innovation poses a risk if adoption does not accelerate as expected, which could affect their future revenue and net margins.
  
• The recent executive transitions, such as the CFO’s retirement and leadership changes within the company, could create instability and affect financial planning and earnings projections.

Valuation

• The analysts have a consensus price target of $47.071 for Five9 based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $67.0, and the most bearish reporting a price target of just $25.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $93.4 million, and it would be trading on a PE ratio of 54.4x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of $22.25, the analyst price target of $47.07 is 52.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.