Should You Hold Five9 (FIVN) Despite Headwinds?

Brown Capital Management, an investment management company, released its “The Brown Capital Management Mid Company Fund” first quarter 2024 investor letter. A copy of the letter can be downloaded here. The Mid Company Fund (Institutional shares) returned 5.21% in the quarter underperforming the 9.50% return for the Russell Midcap Growth Index. The strategy focuses on companies that offer mission-critical products and services that save time, lives, money, and headaches. In addition, check the fund’s top five holdings to know its best picks in 2024.

The Brown Capital Management Mid Company Fund highlighted stocks like Five9, Inc. (NASDAQ:FIVN), in the first quarter 2024 investor letter. Five9, Inc. (NASDAQ:FIVN) provides intelligent cloud software for contact centers. The one-month return of Five9, Inc. (NASDAQ:FIVN) was -16.78%, and its shares lost 48.20% of their value over the last 52 weeks. On June 24, 2024, Five9, Inc. (NASDAQ:FIVN) stock closed at $40.87 per share with a market capitalization of $2.99 billion.

The Brown Capital Management Mid Company Fund stated the following regarding Five9, Inc. (NASDAQ:FIVN) in its first quarter 2024 investor letter:

"Five9, Inc. (NASDAQ:FIVN) is a leader in cloud-based contact center software, offering a comprehensive omnichannel solution that seamlessly incorporates inbound and outbound calling with email, chat, SMS and social media. With the growth of e-commerce, consumers are increasingly opting for digital interactions over physical visits, driving the need for world-class contact-center software solutions. These systems effectively become a virtual front door for customers, serving as indispensable, mission-critical gateways for customer engagement and support. Five9’s cloud-native platform is superior to traditional, on-premise legacy systems, offering lower costs, faster innovation and support for remote-working needs. These advantages are expected to significantly increase cloud adoption in the future, pushing it well above the current level of approximately 20%.

The company reported fourth quarter revenue results that were only modestly ahead of consensus expectations, with disappointing revenue-growth guidance for the first quarter of 2024. Management cited the macroeconomic impact of lower demand for services from the installed base, driven by headwinds within the consumer discretionary vertical, which is the company’s third-largest customer segment. In addition, there are ongoing concerns that new artificial intelligence (AI) technologies could disintermediate contact-center software and shrink the market for the company’s offering. However, AI also offers a significant opportunity for the company, a leader with eight currently marketed AI products that are providing a pricing uplift of as much as 2-3x. In addition, to fully leverage AI’s advantages, customers must first adopt cloud-based solutions, which should accelerate the shift to the cloud, benefiting Five9. The company has seen particularly strong adoption of AI solutions with larger enterprises, helping it expand beyond its earlier success with small and medium-sized customers. Despite the near-term headwinds, Five9 should have a healthy runway for durable double-digit long-term growth driven by industry-leading technology and market-share gains from legacy incumbents."

An IT engineer working on a laptop as planograms for a cloud-based virtual contact center platform appear on the monitor.

Five9, Inc. (NASDAQ:FIVN) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held Five9, Inc. (NASDAQ:FIVN) at the end of the first quarter which was 52 in the previous quarter. In the first quarter, Five9, Inc. (NASDAQ:FIVN) reported $247 million in revenues, reflecting a 13% year-over-year increase. While we acknowledge the potential of Five9, Inc. (NASDAQ:FIVN) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

We discussed Five9, Inc. (NASDAQ:FIVN) in another article and shared Wasatch Small Cap Growth Strategy's views on the company. Five9, Inc. (NASDAQ:FIVN) significantly detracted from the performance of the RiverPark Large Growth Fund in Q1 2024. In addition, please check out our hedge fund investor letters Q1 2024 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.