Problems at Five9 (FIVN)
Five9 (NASDAQ: FIVN — $2.23 billion) is a contact center software company that grew rapidly in the pandemic, but now faces investor fears that AI will disrupt its business. Don’t fret, management has told investors that AI is “a great thing” for Five9. We disagree. The Bear Cave believes Five9 management is lying to investors and the company is a major AI loser racing towards irrelevance.
Founded in 2001, San Ramon-based Five9 is one of many “Contact Center as a Service” or “CCaaS” platforms enabling call center agents to work remotely. The company hasn’t posted a single annual profit since its 2014 IPO and today has ~2,700 employees across offices in the U.S., the Philippines, and Portugal. Five9 software is used by over 3,000 customers with over 350,000 active agent seats and the platform facilitates billions of customer interactions every year. Companies like Alaska Airlines, LendingClub, and Wyndham Hotels use Five9 software to power their contact centers, largely paying on a per-seat basis.
Five9 tells investors that the contact center software market is “highly competitive and evolving rapidly” with competition from established players like NICE, Genesys, Talkdesk and Zoom, as well as newer entrants like Amazon Web Services and Microsoft. Despite the competition, Five9 has posted strong revenue growth until recently. On its last earnings call, the company also lowered its top-line guidance. Below, Five9’s revenue and revenue growth rate over time:
Five9’s slowing revenue growth and recent guidance reduction have left investors worried that AI might be negatively affecting the company. At the Canaccord Genuity conference last month an analyst asked Five9 Chairman and CEO Mike Burkland:
“Is AI a good thing or a bad thing for the CCaaS vendors?”
Mr. Burkland replied,
“It’s a great thing. I wouldn’t say it’s even a good thing. It’s a great thing for CCaaS and all of us… There are several of our customers where we’re seeing this exact same pattern where, if they can automate 5% to 15% of their interactions with self-service, yes, they’re going to have a labor savings in the long run. Oftentimes, that might be less growth in agent count, but it could even be a labor savings in the near term. But they’re also spending money with us on our AI software to automate those interactions…. If they’ve got, for example, a 15% automation scenario where they’re deflecting and automating 15% of their interactions, which is a very high percentage. It for us results in a 30% TAM expansion for overall subscription revenue, including puts and takes on a net basis… at the same time, long run and even medium term, we see it as a very good tailwind.”
The Bear Cave believes Five9 management is lying.
Let’s dig in.