Call center software provider Five9 (NASDAQ: FIVN) reported revenue that beat Wall Street expectations in the third quarter of CY2024, with revenue up 14.8% year over year to $264.2 million. Revenue expectations for next quarter were upbeat at $267.5 million at the midpoint, 2.4% above analyst estimates. Non-GAAP earnings of $0.67 per share were also 15.1% above analyst consensus estimates.
Is Now the Time to Buy Five9? Find out in our full research report.
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Gain: $264.2 million vs. analyst estimates of $255.1 million (3.6% better)
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Custom EPS: $0.67 vs. analyst estimates of $0.58 (15.1% better)
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EVENTS: $52.36 million vs. analyst estimates of $46.74 million (12% better)
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Revenue guidance for Q4 CY2024 is in the middle at $267.5 million, above analyst estimates of $261.3 million
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The adjusted full-year EPS guidance is $2.37 in the middle, beating analyst estimates by 4.6%
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Gross margin (GAAP): 53.8%, compared to 51.7% in the same quarter last year
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Operating margin: -5.8%, compared to -11.2% in the same quarter last year
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EBITDA margin: 19.8%, compared to 17.9% in the same quarter last year
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Free cash flow margin: 7.9%, compared to 3.2% in the previous quarter
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Invoices: $267.9 million at quarter end, up 15.3% year over year
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Market capitalization: $2.35 billion
“We are very pleased to report strong third quarter results, which exceeded our expectations on all key metrics. Subscription revenue grew 20% year over year and we achieved an adjusted EBITDA margin of 20%, which helped drive robust operating cash flow of $41 million. With the acceleration of AI, CX is at an inflection point. We believe our AI-powered platform is at the forefront of enabling a hyper-personalized experience, continuous engagement and seamless customer journeys, while creating a path for sustainable growth.” – Mike Burkland, Chairman and CEO, Five9.
Founded 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 provide more customized customer support.
Work is becoming increasingly distributed, both across geographies and across devices. To ensure businesses can continue to function efficiently, they must be able to communicate as well as they did when teams were co-located, driving demand for integrated communications platforms.
Assessing a company’s long-term performance can provide insight into business quality. Any company can achieve short-term success, but a top company can continue to grow for years. Fortunately, Five9’s revenue grew at a decent compound annual growth rate of 21.1% over the past three years. This is a useful starting point for our analysis.
This quarter, Five9 reported year-over-year revenue growth of 14.8%, and revenue of $264.2 million exceeded Wall Street estimates by 3.6%. Management currently expects an 11.9% year-over-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow by 9.4% over the next twelve months, a slowdown from the past three years. This projection is disappointing and indicates that the market believes its products and services will face some demand challenges.
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In addition to revenue, billings are a non-GAAP metric that sheds additional light on Five9’s business quality. Billings is often called “cash revenue” because it shows how much money the company has collected from customers in a given period. This differs from revenue, which must be recognized in parts over the term of a contract.
Over the past year, Five9’s billings growth has slightly outpaced the industry, averaging a 13.7% increase year over year and an increase of $267.9 million in the latest quarter. This performance was in line with sales growth and demonstrates that the company is successfully converting sales into cash. The growth also improves liquidity and provides a solid foundation for future investments.
The customer acquisition cost payback period (CAC) represents the months it takes to recoup the costs of acquiring a new customer. Essentially, this is the breakeven point for marketing and sales investments. A shorter CAC payback period is ideal as it implies a better return on investment and better scalability of the business.
It is relatively expensive for Five9 to acquire new customers, as the CAC payback period this quarter is 56.1 months. The company’s performance indicates that it operates in a competitive market and must continue to invest to continue its growth trajectory.
We were impressed by the extent to which Five9 exceeded analyst EBITDA expectations this quarter. We were also pleased that full-year earnings per share expectations exceeded Wall Street estimates. Zooming out, we think this was a solid quarter. The stock rose 23.3% to $40.47 immediately after the results.
Five9 indeed had a very strong quarterly result, but is this share a good investment here? We think the latest quarter is just one piece of the longer-term business quality puzzle. Quality, in combination with valuation, can help determine whether the stock is a buy. We cover that in our useful full research report which you can read here. It’s free.
