Cloud contact center software provider Five9 (NASDAQ: FIVN) met Wall Streets revenue expectations in Q3 CY2025, with sales up 8.2% year on year to $285.8 million. On the other hand, next quarter’s revenue guidance of $297.7 million was less impressive, coming in 0.8% below analysts’ estimates. Its non-GAAP profit of $0.78 per share was 6.5% above analysts’ consensus estimates.

Is now the time to buy FIVN? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Five9’s third quarter was marked by solid execution, with the company meeting Wall Street’s revenue expectations and delivering non-GAAP profitability above consensus. Management attributed the performance to accelerating enterprise demand for AI-powered solutions, with CEO Mike Burkland noting that enterprise AI bookings grew over 80% year over year. Additionally, the ongoing shift toward high-margin subscription revenue, supported by transformation initiatives and operational improvements, contributed to margin expansion and record free cash flow. While some short-term headwinds emerged in the commercial segment, the company emphasized its ability to adjust sales strategies and resource allocation.

Looking ahead, Five9’s updated guidance reflects confidence in sustained AI momentum but acknowledges a modest revenue outlook for the coming quarter. Management highlighted that backlog from recent enterprise and AI bookings is expected to drive sequential growth, with President Andy Dignan citing an uptick in cross-sell and upsell activity. However, CFO Bryan Lee cautioned that longer implementation cycles for complex AI deployments may delay revenue recognition, stating, “Deployment of these AI solutions...have longer implementation cycles, typically converting to revenue over multiple quarters.” The company aims to return to double-digit growth in the second half of next year as these initiatives ramp.

Key Insights from Management’s Remarks

Management credited Q3 performance to robust AI demand, a shift to higher-margin subscription revenue, and strategic partner momentum, while addressing commercial segment softness.

• Enterprise AI demand: Five9 saw enterprise AI bookings rise over 80% year-over-year, with AI now accounting for an increased share of subscription revenue. Management linked this growth to large customers prioritizing end-to-end platforms over isolated AI point solutions.
• Subscription mix shift: Subscription revenue, which comprises the bulk of total revenue, grew faster than overall sales as customers adopted more AI and cloud-based services. CFO Bryan Lee said this mix shift supported margin gains and increased revenue per employee.
• Commercial segment recalibration: The commercial business declined more than anticipated, due to underinvestment in demand generation and sales capacity. Five9 addressed this by reallocating resources to balance enterprise and commercial focus, aiming for stabilization in upcoming quarters.
• Strategic partnerships: The company reported accelerated bookings from technology partners, such as quadrupled ServiceNow partnership bookings year-to-date and 60% growth from Salesforce-related deals. Management sees these alliances as key in expanding market reach, particularly in Europe.
• Operational and transformation initiatives: Cost discipline and ongoing transformation efforts resulted in record free cash flow and a fifth consecutive quarter of margin improvement, positioning Five9 to invest further in AI and go-to-market activities.

Drivers of Future Performance

Five9’s outlook centers on the sustained adoption of AI-powered solutions, backlog conversion, and continued operational efficiency, with timing of revenue recognition a key consideration.

• AI backlog monetization: Management expects the backlog of AI and enterprise bookings to progressively translate into revenue over the next several quarters, with the most significant impact in the latter half of next year. The shift to complex AI deployments means longer implementation cycles, which CFO Bryan Lee noted creates a lag between bookings and recognized revenue.
• Margin expansion focus: Ongoing cost management and a higher proportion of subscription revenue are expected to drive further expansion in adjusted operating margins and free cash flow. Management raised its full-year non-GAAP EPS and EBITDA margin targets, underscoring discipline in expense control while continuing to invest in growth initiatives.
• Commercial and competitive dynamics: Five9 is taking steps to address recent commercial segment weakness through increased demand generation and sales capacity. Management also flagged evolving competition from both established players and emerging AI point solutions but stressed its differentiation as an integrated platform provider.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) the speed at which AI and enterprise backlog turns into recognized revenue, (2) stabilization and recovery in the commercial segment following resource reallocation, and (3) continued strength and expansion in strategic partnerships, particularly with ServiceNow and Salesforce. Progress on operational efficiency and new product launches will also be important indicators of future growth.

Five9 currently trades at $21.79, up from $21.54 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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