Five9 (NASDAQ:FIVN) Exceeds Q4 Expectations But Stock Drops 14.5%

Kayode Omotosho /
2022/02/23 4:19 pm EST
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Call center software provider Five9 (NASDAQ: FIVN) beat analyst expectations in Q4 FY2021 quarter, with revenue up 35.7% year on year to $173.5 million. The company expects that next quarter's revenue would be around $170.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Five9 made a GAAP loss of $3.6 million, improving on its loss of $7.21 million, in the same quarter last year.

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Five9 (FIVN) Q4 FY2021 Highlights:

  • Revenue: $173.5 million vs analyst estimates of $165.4 million (4.94% beat)
  • EPS (non-GAAP): $0.42 vs analyst estimates of $0.36 (15.3% beat)
  • Revenue guidance for Q1 2022 is $170.5 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2022 is $756 million at the midpoint, beating analyst estimates by 1.4% and predicting 24% growth (vs 40.6% in FY2021)
  • Free cash flow was negative $5.6 million, compared to negative free cash flow of $13.8 million in previous quarter
  • Gross Margin (GAAP): 54%, down from 59.9% same quarter last year

“We are pleased to report that we finished the year with excellent results for the fourth quarter. Revenue grew 36% year-over-year to a record $173.6 million, driven by the continuing strength of our Enterprise business where LTM subscription revenue grew 51% year-over-year. Our results were driven by the growing market adoption of our AI and Automation offerings, in addition to the success we have made in our march up market, as prospective enterprise customers turn to Five9 for the reliable and innovative platform we have built as a company.”

Started in 2001, Five9 (NASDAQ: FIVN) offers software as a service that makes it easier for companies to set up and efficiently run call centers, and offer more tailored customer support.

Work is becoming more distributed, both across geographies and devices. In order for businesses to keep functioning efficiently, they need to be able to communicate as well as they did when the teams were co-located, which drives the demand for integrated communication platforms.

Sales Growth

As you can see below, Five9's revenue growth has been impressive over the last year, growing from quarterly revenue of $127.8 million, to $173.5 million.

Five9 Total Revenue

And unsurprisingly, this was another great quarter for Five9 with revenue up 35.7% year on year. On top of that, revenue increased $19.2 million quarter on quarter, a very strong improvement on the $10.5 million increase in Q3 2021, and a sign of re-acceleration of growth.

Guidance for the next quarter indicates Five9 is expecting revenue to grow 23.6% year on year to $170.5 million, slowing down from the 45% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $756 million at the midpoint, growing 24% compared to 40.6% increase in FY2021.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Five9's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 54% in Q4.

Five9 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.54 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.

Key Takeaways from Five9's Q4 Results

With a market capitalization of $7.78 billion Five9 is among smaller companies, but its more than $90.8 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We enjoyed seeing Five9’s impressive revenue growth this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown and gross margin deteriorated. Overall, it seems to us that this was a complicated quarter for Five9. The company is down 14.5% on the results and currently trades at $89 per share.

Five9 may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.