Five9, Inc. (FIVN) provides cloud contact center software across the globe. Recently, Five9 agreed to be acquired by Zoom Communications for approximately $14.7 billion in an all-stock transaction. It has also delivered better-than-expected Q2 results.
Amid these developments, it bodes well for investors to take a look at the company’s financial performance and what has changed in its key risk factors.
The all-stock acquisition by Zoom will combine Five9’s Contact Center as a Service (CCaaS) solution with Zoom’s communications platform. This enhances Zoom’s presence with enterprise customers, while also helping it tap the $24 billion contact center market. Moreover, the acquisition offers both Zoom and Five9 substantial cross-selling opportunities to each other’s customers.
Under the terms of the acquisition, investors of Five9 will receive 0.5533 shares of Zoom’s Class A common stock for each Five9 share held by them, implying a $200.28 price for each Five9 share as of the date of the announcement. The transaction is expected to close in the first half of Calendar Year 2022.
Five9’s Q2 revenue increased 44% year-over-year to $143.8 million, beating analysts’ estimate by $11.3 million. This increase was mainly attributable to larger clients, higher sales and marketing activities and better brand awareness. Earnings per share increased to $0.23 from $0.21 a year ago, ahead of the Street’s consensus by $0.09. (See Five9 stock chart on TipRanks)
Following Five9’s Q2 performance, Piper Sandler analyst James Fish lowered the rating on the stock to Hold from Buy, while reducing the price target to $203 from $220.
“The company’s Q2 results were not as strong as we had hoped for, likely because management focused on the takeover by Zoom Video (ZM),” the analyst noted. Further, he views the deal happening “as is” as the most likely scenario.
Based on 3 Buys, and 10 Holds, consensus on the Street is a Hold. The average Five9 price target of $202.10 implies that the stock is fairly priced.
Now, let’s look at what has changed in the company’s key risk factors.
According to the new Tipranks’ Risk Factors tool, Five9’s main risk category is Finance & Corporate, which accounts for 35% of the total 71 risks identified. Since June, the company has added eight new key risk factors that are associated with its proposed merger with Zoom.
The company notes that the number of Zoom shares to be issued in lieu of Five9 shares is fixed and will not be adjusted. As the price of Zoom shares will fluctuate, the holders of Five9 shares cannot be sure of the market value of the stock consideration they will receive.
The merger agreement incorporates provisions that may deter any potential competing acquirer, who may be willing to pay a higher purchase price for Five9. Additionally, the combined entity may not perform as expected, which may negatively impact the price of Zoom shares received by the current Five9 investors. Any failure to complete the merger may adversely affect Five9. Any uncertainty about this merger can also potentially negatively affect Five9’s relationships with its clients, business partners and employees. Consequent to the uncertainty arising from this merger, current and prospective key employees of Five9 may depart.
Under the Legal & Regulatory category, the company highlights that its ability to complete this merger hinges on obtaining required consents and approvals from government entities, which could impose conditions that may have a negative impact on Five9 or the combined entity, or could cause either of the companies to abandon the merger.
Another key risk is that stockholder complaints and lawsuits may be filed against Five9 or its board, which could delay or prevent the merger from happening. The outcome of litigation is uncertain and may divert the attention of Five9’s management and employees from its day-to-day business, while also impacting its financial condition.
The Finance & Corporate risk factor’s sector average is at 38%, compared to Five9’s 35%.
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