Five9 Set To Benefit From AI And Market Expansion: 'Headwinds Have Run Their Course'

Bank of America Securities analyst Michael J. Funk upgraded Five9 Inc FIVN from Underperform to Buy and a price target of $63.

What Happened: Funk shares the bullish view that artificial intelligence (AI) will be a tailwind in the near and medium term as Five9 more meaningfully monetizes its intelligent virtual agents (IVAs).

Five9’s platform is an attractive asset and potential strategic actions are considered to have a non-zero probability of success, Funk says.

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Funk noted that near-term risks are more than reflected in the current share price. Also, COVID-era overprovisioning headwinds have primarily run their course, while the upside from strategic alternatives remains a possibility and skews risk to the upside.

Back-end loaded guidance remains and an overhang on shares, strong backlog, easing customer headcount-related seat pressure, and easier comps create a more favorable set-up for beats. Funk noted that negative revisions to growth estimates are in the rearview.

Funk noted that AI will expand the CCaaS addressable market as virtual agents supplement and replace human agents. Virtual agents will be a tailwind to revenue growth in the near and medium term and could expand the CCaaS TAM by >100% (2024 to 2028), as per the analyst. The 2024 guidance is back-end loaded, but strong bookings and implementation backlogs suggest the risk of a guidance cut is manageable, as per Funk.

Funk’s price target is based on a calendar year 2025 EV/Sales multiple of 3.8x, a discount with 20-30% growth software group. The analyst noted this is justified based on his view that CCaaS is an attractive market and Five9’s strong competitive positioning, offset by slower growth and an intensifying competitive environment.

Funk projected fiscal 2024 sales and EPS of $1.06 billion and $2.22.

Price Action: FIVN shares are down 1.53% at $40.15 at the last check Monday.

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