Five9's (NASDAQ:FIVN) Q3 Sales Top Estimates But Stock Drops

Jabin Bastian /
2022/11/07 4:16 pm EST

Call center software provider Five9 (NASDAQ: FIVN) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 28.5% year on year to $198.3 million. However, guidance for the next quarter was less impressive, coming in at $204.5 million at the midpoint, being 5.2% below analyst estimates. Five9 made a GAAP loss of $23.2 million, down on its loss of $20.5 million, in the same quarter last year.

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Five9 (FIVN) Q3 FY2022 Highlights:

  • Revenue: $198.3 million vs analyst estimates of $195.6 million (1.35% beat)
  • EPS (non-GAAP): $0.39 vs analyst estimates of $0.35 (10.8% beat)
  • Revenue guidance for Q4 2022 is $204.5 million at the midpoint, below analyst estimates of $215.7 million
  • Free cash flow of $17.9 million, up from negative free cash flow of $25.1 million in previous quarter
  • Gross Margin (GAAP): 52.5%, down from 56.4% same quarter last year

“We are pleased to report strong third quarter results with revenue growing 29% year-over-year to a record $198.3 million. This growth was driven by the strength of our Enterprise business where LTM subscription revenue grew 37% year-over-year. This quarter, we achieved an adjusted EBITDA margin of 18.5%, as we continued our disciplined approach of driving balanced growth. We believe there are three immutable trends gathering steam around us, namely the demand for cloud solutions, the digital transformation of contact centers and a growing yet barely penetrated TAM, that will be with us for many years to come.” - Mike Burkland, Chairman and Incoming CEO, Five9

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 very strong over the last two years, growing from quarterly revenue of $112.1 million in Q3 FY2020, to $198.3 million.

Five9 Total Revenue

This quarter, Five9's quarterly revenue was once again up a very solid 28.5% year on year. On top of that, revenue increased $8.96 million quarter on quarter, a very strong improvement on the $6.6 million increase in Q2 2022, which shows acceleration of growth, and is great to see.

Guidance for the next quarter indicates Five9 is expecting revenue to grow 17.8% year on year to $204.5 million, slowing down from the 35.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 21.6% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


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 52.5% in Q3.

Five9 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.52 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 Q3 Results

With a market capitalization of $3.48 billion Five9 is among smaller companies, but its more than $577.1 million in cash and positive free cash flow over the last twelve months give us confidence that Five9 has the resources it needs to pursue a high growth business strategy.

It was good to see Five9 deliver strong revenue growth and positive cash flow this quarter. On the other hand, it was unfortunate that revenue guidance missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Five9. The company is down 5.1% on the results and currently trades at $44.6 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.

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 70% 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.