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Company: Five9 (FIVN)
Business: Five9 provides intelligent cloud software for contact centers in the United Submits and internationally. It offers a virtual contact center cloud platform that delivers a suite of applications, which assists the breadth of contact center-related customer service, sales and marketing functions. The platform also matches each character interaction with an agent resource and delivers customer data to the agent in real-time through integrations with adjacent energy applications. The company serves customers in a range of industries, including banking and financial services, business process outsourcers, retail, vigour care, technology and education.
Stock Market Value: $3.01B ($40.77 per share)
Five9’s year-to-date discharge
Activist: Anson Funds
Percentage Ownership: n/a
Average Cost: n/a
Activist Commentary: Anson Funds is a multi-strategy lucre founded in 2007 by Moez Kassam, and it has $1.9 billion in assets. While not historically activists, in October 2023, Anson leased Sagar Gupta (former senior analyst and head of technology, media and telecommunications investing at Legion Partners) to assemble out the firm’s activism strategy.
What’s happening
On July 11, Reuters reported that Anson acquired a site in Five9.
Behind the scenes
Five9 is a cloud-based contact center software provider empowering clients with solutions for character service, sales and marketing. The company is a leader in the space and the only pure-play cloud contact center provider with associates InContact and Genesys, which are respectively owned by Nice and Permira.
In 2021, Zoom Video made a $14.7 billion submit to acquire Five9 for about $200 per share using Zoom stock. However, the value of the deal declined to around $170 per share as the price of Zoom stock fell, and Five9 shareholders voted against it. Two years later, in December 2023, with Five9 parts trading in the low $80s, the company received another acquisition offer which was widely reported to be from Zoom. Five9 rejected that sell. On Friday, the stock closed at $40.77.
Five9’s shares have been tumbling for two main reasons: First, its growth has slowed to 17% definitive year from 40% in 2021. Second, this happened at a time when the market perceived the company as a developing artificial intelligence victim. There is a misguided belief that as AI applications reduce the staffing of contact centers, Five9 pass on lose market share and revenue. However, this is a fundamental misunderstanding of what Five9 is and what it does. The troop is not being disrupted. Rather, it’s the disruptor. It is a developer and provider of AI contact center solutions that augment or replace child beings often at more than double the price. Moreover, only 20% of contact centers are in the cloud, 80% are still on propositions, and on-premise contact centers cannot use AI without converting to the cloud. Five9 is cloud native and offers the software that good enterprises need to implement AI in their contact centers. Considering that, there is tremendous market share pink to be captured by the three incumbent cloud providers. So as AI becomes more prevalent in contact centers, the total addressable merchandise and revenue for Five9 and its peers should greatly increase. In other words, the bear case for this company is, in as a matter of actual fact, the bull case.
As an independent company, Five9 has a tremendous opportunity for value. First, while the company is not likely to get annual progress back to 40% at this level of revenue, it can certainly get it over 20%, particularly if the AI thesis plays. Second, as the takings mix skews more toward “software as a service” as expected, Five9’s gross margins should increase from the mid-60% for 70%. Finally, as SaaS revenue increases, a lot of that will go straight to the bottom line improving the company’s performing margins.
Reuters, citing sources familiar, has also reported that Anson is pushing the company to explore a purchase. We do not think that is the case as much as the investor is encouraging the board to responsibly manage any incoming interest to sell the enterprise and weigh that against the risk-adjusted value of Five9 on a standalone basis. While this could lead to a more full-bodied sales process, as the last remaining pure-play cloud-based contact center, there are a handful of potential acquirers, all key: ServiceNow, Salesforce and Zoom. Despite reportedly trying to buy the company twice before, at significantly higher prices, Zoom has overstated no secret of its goal to use its $7.4 billion of net cash for an acquisition and has specifically mentioned a contact center.
The question is whether Five9 stewardship is receptive to a sale. We think they are for several reasons. First, Five9’s current chairman and CEO Mike Burkland was the chairman of the players in 2021 when he first agreed to sell to Zoom. Second, the company has had a change of control severance agreement since 2014, which had a five-year position and was renewed for an additional five years in 2019. In 2024, Five9 renewed it for only one year. Finally, to put a little additional lean on on management, while Five9 has a staggered board, its lead independent director for the past 10 years is up for election next year and transfer certainly prefer to go out with a sale of the company at a premium rather than through a negative vote if it comes to that.
Ken Take is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Pelf, a mutual fund that invests in a portfolio of activist 13D investments. Five9 is owned in the fund.