675

Five9 (NASDAQ:FIVN) Posts Better-Than-Expected Sales In Q2 But Stock Drops 10.2%


Petr Huřťák /
2023/08/07 4:17 pm EDT

Call center software provider Five9 (NASDAQ: FIVN) announced better-than-expected results in Q2 FY2023, with revenue up 17.7% year on year to $222.9 million. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $224 million was less impressive, coming in 1.78% below expectations. Five9 made a GAAP loss of $21.7 million, improving from its loss of $23.7 million in the same quarter last year.

Is now the time to buy Five9? Find out by accessing our full research report, it's free.

Five9 (FIVN) Q2 FY2023 Highlights:

  • Revenue: $222.9 million vs analyst estimates of $214.8 million (3.74% beat)
  • EPS (non-GAAP): $0.52 vs analyst estimates of $0.40 (31% beat)
  • Revenue Guidance for Q3 2023 is $224 million at the midpoint, below analyst estimates of $228.1 million
  • The company slightly raised revenue guidance for the full year of $909 million at the midpoint
  • Free Cash Flow of $13.4 million, down 38.3% from the previous quarter
  • Gross Margin (GAAP): 53.2%, in line with the same quarter last year

“We are pleased to report strong second quarter results with revenue growing 18% year-over-year to a record $222.9 million. This growth continues to be driven by our Enterprise business where LTM subscription revenue grew 28% year-over-year. In the second quarter, we achieved another record for GAAP operating cash flow, as adjusted EBITDA margin reached 19%. We experienced a particularly strong quarter for new logo bookings, demonstrating our strong go-to-market execution. We have been a leader in AI and Automation and will continue to push this industry forward, as AI serves as a tailwind for our business and leads to TAM expansion. We remain strategically focused on enabling enterprises to reimagine their customer experience by providing our Intelligent CX Platform combined with our passionate experts.”

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 strong over the last two years, growing from $143.8 million in Q2 FY2021 to $222.9 million this quarter.

Five9 Total Revenue

This quarter, Five9's quarterly revenue was once again up 17.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $4.44 million in Q2 compared to $10.1 million in Q1 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Five9 is expecting revenue to grow 12.9% year on year to $224 million, slowing down from the 28.5% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 16.3% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Profitability

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 53.2% in Q2.

Five9 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.53 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Five9's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.

Key Takeaways from Five9's Q2 Results

Sporting a market capitalization of $5.73 billion, Five9 is among smaller companies, but its more than $659.8 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was good to see Five9 beat analysts' revenue expectations this quarter and slightly raised full year guidance. We were also glad that its gross margin improved. On the other hand, its revenue guidance for next quarter missed analysts' estimates, although non-GAAP EPS guidance was in line. Overall, this was a mixed quarter for Five9. The company is down 7.08% on the results and currently trades at $75.88 per share.

Five9 may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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