A class action lawsuit was filed against Five9, Inc. (FIVN) by Levi & Korsinsky on December 4, 2024. The plaintiffs (shareholders) alleged that they bought FIVN stock at artificially inflated prices between June 4, 2024 and August 8, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Five9 stock during that period can click here to learn about joining the lawsuit.
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Five9 is a SaaS (Software-as-a-Service) provider that offers cloud software solutions for contact centers. The company’s VCC (Virtual Contact Center) cloud platform offers a comprehensive suite of easy applications enabling simultaneous management and optimization of customer interactions across voice, chat, email, web, social media, and mobile channels.
The company’s tall claims about its net new bookings are at the heart of the current complaint.
Five9’s Misleading Claims
According to the lawsuit, Five9 and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about Five9’s net new business figures from SEC filings and related material.
For instance, during the Robert W. Baird Global Consumer, Technology & Services Conference, the CFO stated that the net new bookings are “mission-critical systems,” since Five9 was one of the first on-cloud providers for contact centers.
Furthermore, the CEO mentioned that irrespective of the macro environment, the net new business additions were very strong, with a solid bookings backlog. Also, a majority of that backlog had not turned into revenue, implying a solid sense of future revenue potential for the company.
Finally, during a Five9 presentation at the William Blair Growth Stock Conference held on June 5, 2024, the CEO reiterated the solid net new bookings growth. Five9’s net new logo bookings were witnessing robust quarter-over-quarter record growth, the CEO added.
However, subsequent events (discussed below) reveal that Five9 wilfully misled investors about the net new logo bookings growth and expectations.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the prospects of their logo bookings over the quarters.
The information became clear after the markets closed on August 8, 2024, when Five9 released its Q2 FY24 results. The company lowered its full-year 2024 revenue outlook, citing an uncertain economic backdrop and unfavorable bookings trend. Following the news, FIVN shares collapsed 26.5% on the next day.
Thereafter, during the earnings call on the same day, the CEO said that Five9 had witnessed a challenging bookings quarter due to “constrained and scrutinized” customer budgets. Moreover, the CEO blamed the company’s poor sales execution techniques for the falling bookings. The CEO added that they would implement measures to improve the sales execution and efficiency issues.
Additionally, the CFO stated that the new logo bookings came in below expectations and that the company was not assuming dollar-based retention rate inflection in the second half of 2024.
To conclude, the defendants allegedly misled investors about the growth expectations from net new logo bookings in 2024, despite knowing that the macro environment was not favorable. In the past year, FIVN shares have plunged over 50%, causing massive damage to shareholder returns.
