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

Enterprise: Five9 supplies clever cloud software program for contact facilities in america and internationally. It affords a digital contact heart cloud platform that delivers a collection of purposes, which permits the breadth of contact center-related customer support, gross sales and advertising features. The platform additionally matches every buyer interplay with an agent useful resource and delivers buyer knowledge to the agent in real-time by way of integrations with adjoining enterprise purposes. The corporate serves prospects in a spread of industries, together with banking and monetary companies, enterprise course of outsourcers, retail, well being care, know-how and schooling.

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

Proportion 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 property. Whereas not traditionally activists, in October 2023, Anson employed Sagar Gupta (former senior analyst and head of know-how, 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 heart software program supplier empowering purchasers with options for customer support, gross sales and advertising. The corporate is a pacesetter within the house and the one pure-play cloud contact heart supplier with friends InContact and Genesys, that are respectively owned by Good and Permira.

In 2021, Zoom Video made a $14.7 billion offer 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 against it. Two years later, in December 2023, with Five9 shares buying and selling within the low $80s, the corporate obtained one other acquisition supply which was extensively 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 major causes: First, its progress has slowed to 17% final 12 months 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 cut back the staffing of contact facilities, Five9 will lose market share and income. Nonetheless, it is a basic misunderstanding of what Five9 is and what it does. The corporate isn’t being disrupted. Quite, it is the disruptor. It’s a developer and supplier of AI contact heart options that increase or change human beings typically 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 affords the software program that enormous enterprises have to implement AI of their contact facilities. Contemplating that, there may be large market share left to be captured by the three incumbent cloud suppliers. In order AI turns into extra prevalent involved facilities, the whole addressable market and income for Five9 and its friends ought to tremendously enhance. In different phrases, the bear case for this firm is, in reality, the bull case.

As an impartial firm, Five9 has an incredible alternative for worth. First, whereas the corporate isn’t prone to get annual progress again to 40% at this degree of income, it will possibly 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, a number of that can go straight to the underside line enhancing 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 suppose 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 heart, 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 greater costs, Zoom has made no secret of its objective to make use of its $7.4 billion of web money for an acquisition and has particularly talked about a contact heart.

The query is whether or not Five9 administration is receptive to a sale. We expect 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 an extra 5 years in 2019. In 2024, Five9 renewed it for just one 12 months. Lastly, to place slightly extra stress on administration, whereas Five9 has a staggered board, its lead impartial director for the previous 10 years is up for election subsequent 12 months and will surely choose to exit with a sale of the corporate at a premium relatively than by way of a adverse 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.