Voss Capital: Five9 Inc. ($FIVN) Investment Case

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Voss Capital: Five9 Inc. ($FIVN) Investment Case

In their Q2 2025 investor letter, Voss Capital introduces Five9 Inc. ($FIVN) as a new core long position, positioning it as a leading cloud-based contact center software provider trading at all-time low multiples due to misunderstood AI concerns and misinterpreted management changes. Voss Capital views the market narrative around Five9 as fundamentally flawed, believing AI represents an opportunity rather than a threat, and that recent events including CEO retirement and competitor investments signal potential strategic acquisition activity rather than operational distress. The investment reflects their contrarian approach of identifying quality businesses where “hard categorizations and short attention spans rob many stocks of their nuance.”

Investment Highlight: Five9 Inc. ($FIVN)

Business Overview

  • Leading provider of cloud-based Contact Center as a Service (CCaaS) software
  • Enables enterprises to modernize customer engagement through omnichannel solutions
  • Increasingly AI-driven automation capabilities integrated into platform
  • Deep integrations with enterprise IT ecosystems including ServiceNow and Salesforce

Market Position

  • APIs plug directly into major partners creating switching costs and stickiness
  • Customers must use Five9’s agent desktop to access AI functionality
  • ~60% of $24 billion core CCaaS addressable market still on-premise and migrating to cloud
  • Strengthening partnership with Salesforce despite recent competitive developments

Performance Analysis

  1. Recent Financial Acceleration:
    • Subscription revenue growth reaccelerated to 16% in Q2
    • AI bookings tripled (to appear “in future quarters”)
    • Significant expansion in both gross margins and operating margins
    • Raised guidance across the board
  2. Valuation Metrics:
    • Trading at all-time low multiples: 2.7x EV/Gross Profit, 7.5x EBITDA, 8x 2026 Adjusted Earnings
    • Trading at just 2x ARR vs Genesys at 7.1-9.5x ARR despite similar financial profiles
    • Extreme public/private valuation disconnect highlighted by recent competitor transaction

Strategic Developments and M&A Potential

  • CEO Transition: Mike Burkland retirement announcement potentially signals acquisition window
  • Interim CFO Elevated: Permanent CFO appointment consistent with potential company sale
  • Strategic Buyer Interest: Multiple potential acquirers remain interested in cloud-native CCaaS player
  • Private Equity Interest: Cash-rich firms like Thoma Bravo (allegedly evaluating partner Verint) potential buyers

Genesys Transaction Context

  • Investment Details: Salesforce and ServiceNow made $1.5B investment in private competitor Genesys
  • Valuation Mark: Genesys valued at $15B publicly (closer to $20B with leverage)
  • Growth Comparison: Genesys Cloud ARR of $2.1B growing 35%, but total recurring revenue growth only ~10% (below Five9)
  • Partnership Impact: Salesforce previously invested in Genesys (2021) with no noticeable impact on Five9 partnership

Activist Involvement

  • Anson Funds: Took board seat December 2024, driving operational improvements
  • Track Record: Previously oversaw massive cost takeouts at Twilio while revenue growth reaccelerated
  • Cost Optimization: Significant expense reductions underway following similar playbook
  • Strategic Focus: Activist influence aligned with shareholder value creation

Competitive Advantages

  • Deep enterprise IT ecosystem integration creating high switching costs
  • Cloud-native architecture vs legacy competitors converting to subscription
  • Owner of record for countless customer interactions providing CRM context
  • AI adoption driving both growth and margin expansion potential

Market Misperceptions

  • AI Threat Narrative: Market incorrectly views AI as existential threat vs growth opportunity
  • Execution Issues: Poor 2024 sales execution conflated with AI headwinds
  • CEO Retirement: Misinterpreted as abandoning sale process vs opening acquisition window
  • Cost Cuts: Viewed as operational turmoil vs activist-driven optimization

Valuation and Return Potential

  • Base Case: 9x 2026 EBITDA implies ~70% upside from current levels
  • Comparable Transaction: Genesys valuation provides clear benchmark for strategic value
  • Margin Expansion: Operating leverage from cost optimization and AI adoption
  • Multiple Rerating: All-time low multiples provide significant upside as narrative shifts

Growth Drivers

  • Cloud migration tailwind with 60% of addressable market still on-premise
  • AI-driven automation increasing both revenue and margins
  • Enterprise IT integration deepening customer relationships
  • Partner ecosystem expansion (Salesforce, ServiceNow, others)

Risks

  • AI disruption could reduce need for contact center agents over time
  • Competitive pressure from well-funded rivals like Genesys
  • CEO transition creating potential execution uncertainty
  • Dependence on enterprise IT spending cycles

Investment Catalyst Timeline

  • Near-term: CEO search process potentially attracting strategic buyers
  • Revenue Acceleration: Key catalyst would be sustained overall revenue growth acceleration
  • Margin Expansion: Cost optimization initiatives flowing through to profitability
  • Strategic Transaction: Elevated probability of acquisition given valuation disconnect

Narrative Transformation Potential

  • Current Perception: Slow growth, unprofitable “AI loser”
  • Future Perception: Quick growing, profitable “AI winner”
  • Key Inflection Point: Earnings report showing acceleration in overall revenue growth
  • Valuation Reset: Multiple expansion as market recognizes AI opportunity vs threat

Other Key Points

  • Strategic importance of CCaaS highlighted by Genesys investment
  • Customer interaction data provides valuable context for CRM systems
  • Relief rally failed to materialize despite strong Q2 results showing market stubbornness
  • Agent desktop requirements ensure platform stickiness even as AI evolves

Voss Capital views Five9 as a misunderstood cloud-native CCaaS leader trading at distressed valuations due to incorrect AI threat narratives and misinterpreted management changes. They believe the combination of reaccelerating growth, margin expansion, activist-driven optimization, extreme public/private valuation disconnect (highlighted by Genesys transaction), and elevated acquisition probability creates a compelling asymmetric opportunity with ~70% upside potential as the market’s perception transforms from “AI loser” to “AI winner” and the company’s strategic value becomes recognized.

Click here for the full Pro Investor Letter.

Disclaimer: Third party content is provided for informational purposes only and should not be construed as an offer to sell or a solicitation of an offer to buy or sell any security. Third party content is not intended to serve as a recommendation to buy or sell any security and is not intended to serve as investment advice. Third party content creators are not affiliated with BBAE Holdings LLC, (“BBAE”) Redbridge Securities LLC (“Redbridge Securities”) or BBAE Advisors LLC (“BBAE Advisors”). All investments involve risk, including the possibility of total loss of principal. For additional important information, please click here.

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