After its recent failed merger with Zoom Video Communications, the cloud contact center specialist Five9 (FIVN 3.07%) posted strong quarterly results, and management announced upbeat long-term goals. Yet the stock is trading at a discount to Zoom's initial acquisition all-stock offering. So does Five9 represent an attractive investment opportunity? Let's dig in.

Strong results and ambitious long-term goals

A few months ago, Five9 and Zoom announced an all-stock merger agreement where Zoom agreed to acquire Five9 shares for $200.28 based on the price of Zoom's stock at that time.

From an operational perspective, the deal made sense. Five9's contact center solution, which handles communications between enterprise agents and customers, complements Zoom's unified video communication platform.

But in September, Five9 shareholders rejected the transaction as it became less attractive. Indeed, following disappointing quarterly results, Zoom's share price dropped, which implied a lower acquisition price for Five9 shares.

Call center agents working on computers.

Image source: Getty Images.

So, back to square one, Five9 reported quarterly results for the first time since the busted deal. And those results indicate that the company can still show impressive operating performance as a stand-alone entity.

Revenue increased 38% year over year to $154.3 million, as enterprises have been migrating away from legacy on-premises contact center technologies to adopt cloud solutions, such as Five9's.

Given the tailwind that cloud migrations represent for the company, during the earnings call management set new ambitious long-term goals it had previously communicated as a model in the scope of the merger with Zoom. It expects revenue to reach $2.4 billion in 2026, which corresponds to a compound annual growth rate of 32% during that time frame, based on forecasted revenue of $601 million this year.

It also anticipates the profitability of the business to improve, with adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) to represent at least 23% of revenue in 2026. In comparison, the company's adjusted EBITDA margin declined year over year to 17.8% during the last quarter, driven by research and development and sales and marketing expenses to fuel growth.

Competitive cloud contact center market

Given Five9's strong results and encouraging long-term outlook, the stock price surged by 14.47% following the news. Yet the stock is still trading well below Zoom's initial offering of $200.23.

That doesn't mean investors should rush to buy the stock, though. At around $166 per share as of this writing, the company's market cap represents 18.7 times and 4.7 times anticipated revenue in 2021 and 2026, respectively. That means investors are already pricing in strong execution going forward. 

Granted, Five9 will profit from its vast cloud contact center market opportunity that management estimated at $24 billion.

But in 2020, the research outfit Gartner downgraded Five9 from a leader to a challenger in its magic quadrant for contact center as a service (CCaaS) in terms of ability to execute and completeness of vision. The research peer Forrester seems to agree, as it also ranked Five9 behind the leading CCaaS providers Nice Systems, Genesys, and Talkdesk, based on the companies' strategies and offerings.

In addition, extra competition will be materializing. For instance, Zoom plans to release its own video-based cloud contact center solution in early 2022. Considering its phenomenal execution over the last several years in its core cloud communications business while competing against large rivals such as Microsoft and Cisco Systems, Zoom is likely to become a solid CCaaS player over the long term.

Thus, investors should remain prudent. Buying Five9's shares at a discount to Zoom's initial acquisition offering in the context of encouraging results and exciting long-term goals seems attractive. But the transaction was based on Zoom's pricey stock at that time. And Five9's stock upside potential will depend on flawless execution over the next many years against intensifying competition. So, for now, I prefer to stay on the sidelines.