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On Friday, Evercore ISI adjusted its outlook on Five9, Inc (NASDAQ:FIVN), reducing the price target to $40 from $55, while maintaining an Outperform rating on the company’s shares. Currently trading at $25.08, Five9 appears undervalued according to InvestingPro analysis. Five9 reported a robust first quarter, surpassing key performance indicators, with revenue reaching $1.04 billion over the last twelve months and showing 14.4% growth. The guidance for second quarter revenue met expectations, and profitability exceeded them, a positive sign considering the current economic climate and the company’s sensitivity to it.
Management at Five9 has decided to uphold their full-year CY25 forecast. Despite this, by not incorporating the $7.7 million Q1 beat into the second half of the year, they have effectively indicated a lower expectation for that period. The stock has experienced significant pressure, falling 55.8% over the past year, though InvestingPro data shows strong fundamentals with a current ratio of 1.95, indicating healthy liquidity. The first quarter could have seen even greater success if not for some delayed deals impacted by macroeconomic factors.
Five9’s management noted increased reluctance among international clients, particularly in Canada, to engage with U.S. vendors due to geopolitical concerns. The company is also navigating more challenging year-over-year comparisons because of a steeper seasonal drop in consumer and healthcare sectors. Additionally, there has been a lengthening of sales cycles for larger deals and some deal slippage in the first quarter.
Despite these challenges, management introduced a midterm (CY27) target model during the earnings call. This model forecasts 10%-15% top-line growth, building on the company’s impressive five-year revenue CAGR of 26%. The targets include gross margins of 66%-68%+, improving on the current 54.4%, and adjusted EBITDA margins of 25%-30%+. These targets are based on a stable macro environment, suggesting potential for higher growth if conditions improve. InvestingPro subscribers can access detailed financial health scores and additional insights through comprehensive Pro Research Reports, available for over 1,400 US stocks including Five9. Management also discussed transformation initiatives to enhance the company’s long-term competitive position, drive profitable growth, and accelerate investments in AI and go-to-market strategies.
In summary, Evercore ISI analysts view the quarter as well-executed, with management effectively communicating their strategy to balance growth with profitability, and providing transparency about macro headwinds. They believe the current valuation offers an attractive risk/reward balance that does not fully account for Five9’s strategic value, appealing to investors with a long-term perspective.
In other recent news, Five9 reported impressive financial results for Q1 2025, surpassing analyst expectations. The company achieved earnings per share of $0.62, which exceeded the forecasted $0.49, and reported revenue of $279.7 million, outpacing the anticipated $272.29 million. Five9’s subscription revenue, which comprises a substantial portion of its total income, grew by 14% year-over-year. AI initiatives played a significant role in this revenue growth, highlighting the company’s strategic focus on technology. Additionally, Five9 has maintained its full-year 2025 revenue guidance at $1.14 billion, with expectations for Q2 revenue to reach a midpoint of $275 million. The company is targeting medium-term revenue growth of 10-15% and an adjusted EBITDA margin of 25-30%. Despite facing challenges such as elongating enterprise sales cycles and international market resistance, Five9 remains optimistic about its growth prospects, particularly in AI, with enterprise AI revenue growing by 32% year-over-year. Analyst firms, including Needham and Mizuho (NYSE:MFG), have noted these developments, reflecting investor confidence in Five9’s strategic direction.
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