Activist Anson may have spotted a huge opportunity for value in Five9

Enterprise: Five9 offers clever cloud software program for contact facilities in the USA and internationally. It provides a digital contact middle cloud platform that delivers a set of purposes, which allows the breadth of contact center-related customer support, gross sales and advertising capabilities. The platform additionally matches every buyer interplay with an agent useful resource and delivers buyer knowledge to the agent in real-time via integrations with adjoining enterprise purposes. The corporate serves prospects in a variety of industries, together with banking and monetary companies, enterprise course of outsourcers, retail, well being care, expertise and schooling.

Inventory Market Worth: $3.01B ($40.77 per share)

Share Possession:  n/a

Common Price: n/a

Activist Commentary: Anson Funds is a multi-strategy fund based in 2007 by Moez Kassam, and it has $1.9 billion in belongings. Whereas not traditionally activists, in October 2023, Anson employed Sagar Gupta (former senior analyst and head of expertise, media and telecommunications investing at Legion Companions) to construct out the agency’s activism technique.

On July 11, Reuters reported that Anson acquired a place in Five9.

Five9 is a cloud-based contact middle software program supplier empowering shoppers with options for customer support, gross sales and advertising. The corporate is a frontrunner within the area and the one pure-play cloud contact middle supplier with friends InContact and Genesys, that are respectively owned by Good and Permira.

In 2021, Zoom Video made a $14.7 billion provide to amass Five9 for about $200 per share utilizing Zoom inventory. Nonetheless, the worth of the deal declined to roughly $170 per share as the worth of Zoom inventory fell, and Five9 shareholders voted in opposition to it. Two years later, in December 2023, with Five9 shares buying and selling within the low $80s, the corporate acquired one other acquisition provide which was broadly reported to be from Zoom. Five9 rejected that supply. On Friday, the inventory closed at $40.77.

Five9’s shares have been tumbling for 2 foremost causes: First, its development has slowed to 17% final yr from 40% in 2021. Second, this occurred at a time when the market perceived the corporate as a possible synthetic intelligence sufferer. There’s a misguided perception that as AI purposes scale back the staffing of contact facilities, Five9 will lose market share and income. Nonetheless, this can be a elementary misunderstanding of what Five9 is and what it does. The corporate just isn’t being disrupted. Fairly, it is the disruptor. It’s a developer and supplier of AI contact middle options that increase or exchange human beings usually at greater than double the worth. Furthermore, solely 20% of contact facilities are within the cloud, 80% are nonetheless on premises, and on-premise contact facilities can not use AI with out changing to the cloud. Five9 is cloud native and provides the software program that giant enterprises must implement AI of their contact facilities. Contemplating that, there may be great market share left to be captured by the three incumbent cloud suppliers. In order AI turns into extra prevalent in touch facilities, the entire addressable market and income for Five9 and its friends ought to significantly enhance. In different phrases, the bear case for this firm is, in truth, the bull case.

As an unbiased firm, Five9 has an incredible alternative for worth. First, whereas the corporate just isn’t prone to get annual development again to 40% at this degree of income, it might probably actually get it over 20%, notably if the AI thesis performs. Second, because the income combine skews extra towards “software program as a service” as anticipated, Five9’s gross margins ought to enhance from the mid-60% over 70%. Lastly, as SaaS income will increase, numerous that may go straight to the underside line bettering the corporate’s working margins.

Reuters, citing sources acquainted, has additionally reported that Anson is pushing the corporate to discover a sale. We don’t assume that’s the case as a lot because the investor is encouraging the board to responsibly handle any incoming curiosity to promote the corporate and weigh that in opposition to the risk-adjusted worth of Five9 on a standalone foundation. Whereas this might result in a extra sturdy gross sales course of, because the final remaining pure-play cloud-based contact middle, there are a handful of potential acquirers, all strategic: ServiceNow, Salesforce and Zoom. Regardless of reportedly attempting to purchase the corporate twice earlier than, at considerably larger costs, Zoom has made no secret of its aim to make use of its $7.4 billion of web money for an acquisition and has particularly talked about a contact middle.

The query is whether or not Five9 administration is receptive to a sale. We predict they’re for a number of causes. First, Five9’s present chairman and CEO Mike Burkland was the chairman of the corporate in 2021 when he first agreed to promote to Zoom. Second, the corporate has had a change of management severance settlement since 2014, which had a five-year time period and was renewed for a further 5 years in 2019. In 2024, Five9 renewed it for just one yr. Lastly, to place a bit further strain on administration, whereas Five9 has a staggered board, its lead unbiased director for the previous 10 years is up for election subsequent yr and would definitely desire to exit with a sale of the corporate at a premium slightly than via a unfavorable vote if it involves that.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Five9 is owned within the fund.