September 7, 2021
Needham & Co.’s Scott Berg
In July, Zoom and Five9 disclosed the $14.7 billion all-stock transaction. Through the Five9 acquisition, Zoom can extend its global communications network with a cloud-based contact center as a service.
Zoom should complete the acquisition in the first half of 2022, subject to approval by Five9’s stockholders. After the deal closes, Five9 will operate as a business unit within Zoom and remain under Five9 CEO Rowan Trollope.
Five9, Zoom Fundamentals Moving in ‘Opposite Directions’
Berg is managing director and senior research analyst at Needham & Co. He released his note on the acquisition Tuesday. It upgraded Five9‘s stock from hold to buy.
“We believe the current [Zoom] offer to acquire [Five9] … is fundamentally flawed with Zoom and Five9’s fundamentals moving in opposite directions in the short term,” he said.
Zoom shares pulling back has dragged the acquisition price 18% lower today than the initial $200.23 price and Five9’s $177.60 price before the acquisition was announced, Berg said.
Last week, Five9’s stock fell more than 15% in reaction to Zoom’s disappointing third-quarter forecast.
Five9‘s demand is strong, so voting down the deal is a win for shareholders, he said. That’s because its independent price would likely be higher than current levels with a great near-term outlook.
Five9’s second-quarter 2021 financial results suggest business momentum remains strong, Berg said. Needham is confident in the company’s ability to sustain a 30% annual revenue growth rate for at least the next couple years.
Strong Contact Center Demand
Needham conducted several recent contact center industry checks that suggest overall contact center demand remains “robust and very comparable to demand trends experienced over the last year,” Berg said.
“We believe [Five9] shareholders will vote down [the] current price, requiring Zoom to raise [its] bid to complete [the] transaction,” he said.
451 Research’s Raul Castanon
Raul Castanon is senior research analyst with 451 Research, part of S&P Global Market Intelligence. He also shared some latest thoughts on the deal.
“The acquisition of Five9 positions Zoom within the call center space, setting the stage for long-term growth with a strategy encompassing the broader cloud communications opportunity – including unified communications, online events, developer tools and contact center,” he said. “However, at $14.7 billion, the deal already carries a hefty premium. At the time of the announcement, the deal valued Five9 at 30 times trailing revenue – two turns higher than Zoom itself trades at, with just a fraction of the growth. According to S&P Capital IQ Pro, Five9’s revenue increased 37% over the previous 12 months, meager only by comparison with the nearly four times Zoom itself posted.”
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