Five9 (FIVN)

Cloud contact center software provider Five9 (NASDAQ:FIVN) met Wall Streets revenue expectations in Q3 CY2025, with sales up 8.2% year on year to $285.8 million. On the other hand, next quarter’s revenue guidance of $297.7 million was less impressive, coming in 0.8% below analysts’ estimates. Its non-GAAP profit of $0.78 per share was 6.5% above analysts’ consensus estimates.

Company Overview

Taking its name from the "five nines" (99.999%) standard for optimal service reliability in telecommunications, Five9 (NASDAQ:FIVN) provides cloud-based software that enables businesses to run their contact centers with tools for customer service, sales, and marketing across multiple communication channels.

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.

Five9 competes with legacy on-premise contact center system providers like Avaya and Cisco Systems, cloud contact center software providers such as Genesys and NICE, smaller specialists like Content Guru and Talkdesk, and technology giants including Amazon, Twilio, and Microsoft that offer contact center development tools.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Five9’s 23.1% annualized revenue growth over the last five years was solid. Its growth beat the average software company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Five9’s recent performance shows its demand has slowed as its annualized revenue growth of 13.2% over the last two years was below its five-year trend.

This quarter, Five9 grew its revenue by 8.2% year on year, and its $285.8 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 6.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.7% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Five9’s billings came in at $293.8 million in Q3, and over the last four quarters, its growth was underwhelming as it averaged 10.6% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

It’s relatively expensive for Five9 to acquire new customers as its CAC payback period checked in at 175.3 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a highly competitive market and must invest to stand out, even if the return on that investment is low.

For software companies like Five9, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Five9’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 55.4% gross margin over the last year. Said differently, Five9 had to pay a chunky $44.63 to its service providers for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Five9 has seen gross margins improve by 2.7 percentage points over the last 2 year, which is very good in the software space.

In Q3, Five9 produced a 55% gross profit margin, in line with the same quarter last year. Zooming out, Five9’s full-year margin has been trending up over the past 12 months, increasing by 1.8 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Five9 has done a decent job managing its cost base over the last year. The company has produced an average operating margin of 1.2%, higher than the broader software sector.

Looking at the trend in its profitability, Five9’s operating margin rose by 8.6 percentage points over the last two years, as its sales growth gave it operating leverage.

This quarter, Five9 generated an operating margin profit margin of 5.6%, up 11.5 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Five9 has shown mediocre cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 11.3%, subpar for a software business.

Five9’s free cash flow clocked in at $38.3 million in Q3, equivalent to a 13.4% margin. This result was good as its margin was 5.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

Over the next year, analysts predict Five9’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 11.3% for the last 12 months will increase to 13.7%, it options for capital deployment (investments, share buybacks, etc.).

Five9 reported $676.2 million of cash and $798 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $256.6 million of EBITDA over the last 12 months, we view Five9’s 0.5× net-debt-to-EBITDA ratio as safe. We also see its $49.67 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Five9 blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EPS guidance exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next quarter slightly missed and its billings fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 2.2% to $22 immediately after reporting.

Updated: December 4, 2025 at 9:21 PM EST

Are you wondering whether to buy Five9 or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Five9 isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its gross margins show its business model is much less lucrative than other companies. On top of that, the company’s ARR has disappointed and shows the company is having difficulty retaining customers and their spending.

Five9’s price-to-sales ratio based on the next 12 months is 1.5x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $34.05 on the company (compared to the current share price of $20.60).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.