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Why Shares of Five9 Zipped 13% Higher This Morning

By Nicholas Rossolillo – Nov 9, 2021 at 12:50PM

Key Points

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A solid Q3 earnings report had the cloud contact center company on the rebound.

What happened

Shares of cloud computing firm Five9 (FIVN 2.13%) were up 13% this morning as of 11:45 a.m. EST. The contact-center software provider updated investors on third-quarter 2021 earnings, and the numbers exceeded expectations. Revenue was $154 million (up 38% year over year), and adjusted earnings per share were $0.28 (up 3.7%).  

A man sitting in front of a computer with a videoconference displayed on the screen.

Image source: Getty Images.

So what

Even after the rally this morning, Five9 stock remains in negative territory for 2021, down nearly 6% for the year thus far. The stock is still on the mend following the scrapped merger with fellow cloud-based communications firm Zoom Video Communications (ZM 1.43%) a few months ago. Five9 shareholders rejected the bid, instead opting to go it alone because of the huge opportunity still out there as large businesses around the world migrate their operations over to a more modern contact-center platform. 

Thus far, with Five9 still sitting some 30% below its all-time high and yet to meaningfully recover to its levels before the Zoom offer, the market overall seems to be thinking Five9 should have merged.

The third-quarter earnings report helps validate the rationale behind the shareholder decision, though. The company is investing heavily, especially in sales and marketing, to promote growth. The pace of expansion in the last quarter shows it's achieving its aim. And by one metric -- adjusted earnings before interest, tax, depreciation, and amortization -- Five9 turned a healthy profit of $27.4 million, with an adjusted profit margin of 17%. Not bad for a company that is investing lots of spare change back into the business to maximize expansion, rather than emphasize the bottom line.  

Now what

For the fourth quarter of 2021, management said to expect sales in a range of $164.5 million to $165.5 million. At the midpoint, that represents a 29% increase from the same period last year. Additionally, adjusted earnings per share should be up about 6% year over year.

At about 17 times expected 2021 sales to enterprise value, this is no cheap software stock. Nevertheless, Five9 is still growing at a healthy clip and is worth your continued attention even without a tie-up with videoconferencing leader Zoom.

Nicholas Rossolillo and his clients own shares of Zoom Video Communications. The Motley Fool owns shares of and recommends Five9 and Zoom Video Communications. The Motley Fool has a disclosure policy.

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