Two big changes are underway in the customer service software industry — cloud computing and the use of artificial intelligence — and Five9 (FIVN) is in the thick of both developments. That could be why Five9 stock has been outperforming many other enterprise software companies amid the market correction.
San Ramon, Calif.-based Five9 has a Relative Strength Rating of 97 out of a possible 99. The relative strength line tracks a stock’s performance vs. the S&P 500 index.
Five9 also is ranked No. 37 in the IBD 50 roster of growth stocks. Five9 stock has gained 77% from a year ago.
The cloud software provider has found bullish support near the 50-day moving average since late November, even as the major indexes plummeted. That’s a bullish sign.
Five9 stock is trading about 10% below an entry point of 49.50 and could be in the process of building a cup-type chart base. One concern is that Five9 has had a monster run since a breakout in the week ended Jan. 13, 2017, past a 16.50 buy point. The current base is definitely late stage.
Customer Service Software Shifts To Cloud
One big trend in the corporate market is that companies are shifting away from internal contact centers that provide customer services. As a result, companies are buying less software for their own information technology departments.
Instead, corporate America is buying more cloud-based contact center software.
Five9 rents space in internet data centers to host its business communications software. Customers access its tools remotely via the internet.
The other big change in customer service software is that companies like Five9 are using artificial intelligence to improve their products.
Artificial Intelligence Drives Chatbots
Five9 is developing machine learning algorithms that helps companies automate the process of gathering data on what questions or problems consumers bring up. Another goal with AI is providing real-time assistance to customer service agents so they can solve problems quicker.
David Hynes, an analyst at Canaccord Genuity, recently met with Five9 management.
“We came away with a hardened conviction that this is a big market, Five9 is pulling away as the cloud leader, and an upbeat view of what lies ahead for the opportunity with AI in the contact center,” said Hynes in a Dec. 20 report.
Hynes said Five9 could have a “multiyear run” of mid-20s revenue growth with expanding margins.
The analyst added that while Five9 aims to be an innovator in AI, its marketing strategy has been built around providing reliable, cloud-based services. Hence the company name of Five9, which stands for 99.999% service availability. According to Five9, its clients can deploy new customer services agents in any geographic location. All the agents need is a computer, headset and broadband connection.
Five9 A Takeover Target?
Five9 competes with RingCentral (RNG), Twilio (TWLO), startup Talkdesk and others.
Terry Tillman, analyst at SunTrust Robinson Humphrey, says Five9 has built up its management team. In November, Five9 brought in James Doran as executive vice president of strategy and operations.
“We believe key new hires will help successfully scale the business over the next 3 to 5 years in a base case scenario,” said Tillman in a Dec. 3 report. “Or it could lead to increased market disruptor status and position the company for a possible strategic buyout by either a large cloud provider focused on digital engagement or legacy (customer service software) provider looking to stave off further share losses.”
Five9 stock advanced 1.2% to close at 43.72 on the stock market today.
