🎧 What Led Five9 To Drop Zoom's Call?

Delta's ticket sales improve; Chip shortage hurts GM

Hey Global Investor! Here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Friday’s Close) 4,357.04 +49.50 (1.15%)

NASDAQ (Friday’s Close) 14,566.70 +118.12 (0.82%)

FTSE 100 (4:30 PM IST) 7,038.57 +11.57 (0.16%)

NIFTY 50 (Today’s Close) 17,691.25 +159.20 (0.91%)

USDINR (Today’s Close) 74.34 (1 Year -1.11%)

🔥 Top Movers

AVIR +19.82%
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VIR -21.07%
RIDE -18.30%
CVAC -14.74%

🎧 Five9: Zoom’s Call Dropped?

Five9 Inc. (FIVN) spurned the $14.7B offer from Zoom Video Communications (ZM) on Friday. While Zoom’s management has to explore other avenues of growth, shareholders of Five9 are thrilled the deal didn’t go through. (Tweet This)

Five9 On Cloud 9

Founded in 2001, Five9 is a pioneer and a leading provider of cloud software for call centers. Over the last two decades, it has garnered over 2K customers globally and 7B customer interactions annually.

Five9 went public in 2014, selling shares at $7 apiece in its IPO, raising $70M in the process. It counted SAP Ventures, Mosaic Venture Partners, Adams Street Partners among its top investors. By the time the pandemic hit in 2020, its stock price had already appreciated 10x from its IPO price.

Cloud technologies were on cloud nine during the pandemic, and Five9 was no different. Shares crossed the $200 mark for the first time in April this year. After some gyrations, the stock is now in the $160 range, up 23X since IPO.

Zoom was thrust into the limelight during the pandemic, and its stock also grew to staggering heights. Between Q4 2019 and Q4 2020, the company’s customers having over ten employees rose over 5x to 467K from 82K.

With an increasing rate of vaccinations and the pandemic slowly easing its grip, people are beginning to return to the office. In tandem, Zoom’s subscriber growth that saw a meteoric rise in 2020 began to stagnate. It needed to find ways to bolster growth. This is where Five9 came in.

Zoom, Interrupted.

Zoom and Five9 were already collaborating on two services – the Unified Communications as a Service (UCaaS) and the Contact Center as a Service (CCaaS). Zoom figured it only made sense to acquire Five9 lock, stock, and barrel.

Zoom announced the $14.7B all-stock deal in July. Five9 shareholders were to receive 553 shares of Zoom for every 1K shares held. This price meant a 12.8% premium to Five9’s then share price and would have been Zoom’s largest acquisition to date.

Other than the announcement, not much else has gone Zoom’s way. Last quarter was Zoom’s first-ever billion-dollar quarter. But investors were more worried about slowing growth prospects. Despite Zoom acquiring event marketing and management platform CVent (for an undisclosed sum), the alarm bells didn’t stop ringing.

Zoom shares have declined ~30% since the Five9 deal was announced. Shareholder advisory firm Institutional Shareholder Services (ISS) asked Five9 shareholders to oppose the deal saying post-pandemic uncertainties make Zoom’s growth estimates unreliable.

Separately, the Department of Justice was also probing the deal citing possible national security concerns. This was the proverbial straw that broke the camel’s back. Jittery Five9 shareholders voted against the deal with Zoom. Its CEO even said Zoom’s offer “wasn’t going to cut it.”

This falling out will not have an impact on their existing collaborations. In response, Five9 shareholders heaved a sigh of relief and pushed the stock up 5% on Friday while hoping there’s another suitor with a much better premium.

As for Zoom, it needs to figure out growth opportunities quickly and execute. Otherwise, there’s a real risk of 2020’s growth rate remaining in hindsight for good!

Market Reaction
FIVN ended at $167.26, up 4.71%.

Company Snapshot 📈

FIVN $167.26 +7.52 (4.71%)

Analyst Ratings (17 Analysts) BUY 65%  HOLD 35%  SELL 0%

Newsworthy 📰

Better: Delta Air’s ticket sales improve, reinstates initial Q3 revenue view (DAL +6.50%)

Strong: Tesla delivered 241K vehicles in Q3, topping expectations (TSLA -0.09%)

Crisis: Chip shortage tanks GM’s third-quarter sales (GM +0.78%)

Later Today 🕒

  • Duckhorn Portfolio Inc. Earnings (NAPA)
  • Pool Corporation Earnings (POOL)
  • Comtech Telecomm Corp. Earnings (CMTL)
  • 7:30 PM IST: Factory Orders

Today’s Market Terminology: Broker

A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal

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