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Mizuho noted that investors remain cautious on Five9 (NASDAQ:FIVN) and Nice (NASDAQ:NICE), while valuation is attractive ahead of the cloud platform providers’ quarterly results in August.
Analysts led by Siti Panigrahi noted that since the start of the year, Fives (-41%year-to-date) and NICE (-7% year-to-date) have underperformed the broader software sector (IGV +6% YTD). This reflects investors’ concern around top-line growth, which they believe is largely impacted by the tougher macro environment and Jack of Al revenues.
Net Revenue Retention, or NRR, remains under pressure due to limited ability to expand contact center seat counts (broadly flat per Mizuho’s checks). Moreover. Al revenue has yet to become a meaningful contributor to overall revenue growth, which has impacted investor sentiment since the start of the year, the analysts added.
They believe any positive data points or commentary on the these concerns would be positive for Five9/Nice shares. However, the analysts have reduced their price target on Five9’s stock to $65 and for Nice to $230 from 280 due to the multiple contraction amongst the software peer group.
The analysts added that investors are still concerned about Contact Center-as-a-Service, or CCaaS, Growth. They believe investor sentiment has worsened for the broader software industry (particularly for companies with seat-based models). Mainly for CCaaS, there is still some investor concern that stable to declining agent seat counts would impact net retention trends for CCaaS vendors.
While Al revenue could offset this temporary headwind over the near-term, the analysts noted that the strong Al bookings trends have yet to translate into meaningful Al revenue.
Nevertheless, the trends exiting the first quarter appear to offer some signs of stability (Five9 delivered a strong Q1 revenue beat and NICE saw small and medium-sized businesses, or SMB, weakness stabilize) with growing momentum in large enterprise cloud migrations.
Five9 (FIVN): Panigrahi’s team still have concerns over the second-half growth outlook. They said that the second-quarter consensus revenue estimates of $246M (10% year-over-year growth) sets a low bar, and they expect Five9 to beat by around $6M to $7M (similar to Q1), implying $251M-$252M (13% Y/Y) revenue.
Although investors expect Five9 to lower its 2024 revenue guidance, the analysts expect no changes to the $1.055B outlook at midpoint as the company’s visibility into Q4/Q1 bookings should contribute to second half revenues.
While a second quarter revenue beat along with relatively easier comps should make the implied H2 guidance more achievable, the analysts believe shares are likely to remain largely range-bound until the company can show evidence of reaccelerating growth.
Five9 is slated to report its second-quarter results on Aug. 8 after markets close.
Nice (NICE): For the second-quarter Panigrahi and the team expect around $4 to $5M revenue beat (or about 1% beat) versus the midpoint of Nice’s guidance, implying $666-$667M revenue versus consensus of $663.5M.
The analysts expect organic Cloud revenue growth of about 18% year-over-year (consistent with the full-year outlook) and they do not expect any meaningful changes to the 2024 revenue guidance.
The analysts would look for the company’s management’s commentary around cloud migration trends and any incremental color on Al bookings/Al revenue trajectory. However, a new CEO announcement would be a positive catalyst for Nice, they noted.
Nice is scheduled to report second quarter results on Aug. 15 before markets open.
Five9 (FIVN) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ (total 1 author here) average rating is more positive with a Buy, and so is the average Wall Street analysts’ rating, Buy.
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