Brown Capital Management, an investment management company, released its “The Brown Capital Management Mid Company Fund” second quarter 2024 investor letter. A copy of the letter can be downloaded here. The Mid Company Fund (Institutional shares) returned -7.85 % in the quarter significantly underperforming -3.21% return for the Russell Midcap Growth Index. The strategy focuses on EGCs with strong revenue growth, competitive advantages, and differentiated products that save time, and money or deliver significant value to consumers. In addition, check the fund’s top five holdings to know its best picks in 2024.
Brown Capital Management Mid Company Fund highlighted stocks like Five9, Inc. (NASDAQ:FIVN), in the second quarter 2024 investor letter. Five9, Inc. (NASDAQ:FIVN) provides intelligent cloud software for contact centers. The one-month return of Five9, Inc. (NASDAQ:FIVN) was -8.36%, and its shares lost 58.15% of their value over the last 52 weeks. On September 6, 2024, Five9, Inc. (NASDAQ:FIVN) stock closed at $28.61 per share with a market capitalization of $2.211 billion.
Brown Capital Management Mid Company Fund stated the following regarding Five9, Inc. (NASDAQ:FIVN) in its Q2 2024 investor letter:
“Five9, Inc. (NASDAQ:FIVN) is a leader in cloud-based contact-center software, which serves as the routing engine to connect callers to agents. With the growth of e-commerce, consumers are making fewer in-person visits to stores but contacting companies more frequently, driving the need for world-class contact-center software solutions like Five9’s. It has been a tough couple of years for Five9’s stock and this quarter provided no relief. Competitive concerns, questions about AI’s long-term impact on the business and deteriorating macroeconomic conditions have all cast clouds over the company’s stock. Five9’s consumer segment, one of its largest divisions, has really struggled of late as clients hire fewer call-center agents, pressuring Five9’s seat-based revenue model. Total revenue growth decelerated to 13% year-over-year in the most recent quarter, down from 28% and 17% in 2022 and 2023, respectively. Moreover, management guided to 16% for the full year 2024, which some consider optimistic given the weak start to the year. These worsening sales trends further weighed on shares during the quarter.
Looking through the current industry doldrums, we see a bright future for Five9. The company inked its largest deal ever during the quarter, which will generate more than $50 million in annual revenue once fully rolled out. We believe this is an important signal of Five9’s long-term potential. The company is attacking a $60 billion market opportunity, is winning new business at industry-leading rates and is gaining share from legacy incumbents stuck with antiquated technology. We continue to assess the potential threat of AI, but so far it has provided an uplift to company results. The company’s AI product is very popular with large enterprises as it assists agents with customer interactions and can sometimes be used to fully automate interactions. Far from shrinking the number of industry seats, as some fear, management said revenue per seat doubles when customers adopt their AI applications. We expect sales growth to pick up markedly in the coming years, which should result in much stronger stock performance.”
An IT engineer working on a laptop as planograms for a cloud-based virtual contact center platform appear on the monitor.
Five9, Inc. (NASDAQ:FIVN) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held Five9, Inc. (NASDAQ:FIVN) at the end of the second quarter which was 38 in the previous quarter. In the second quarter, Five9, Inc. (NASDAQ:FIVN) reported $252.1 million in revenues, up 13.10% year-over-year. While we acknowledge the potential of Five9, Inc. (NASDAQ:FIVN) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Five9, Inc. (NASDAQ:FIVN) and shared the list of best cloud stocks to buy according to analysts. Five9, Inc. (NASDAQ:FIVN) detracted from the performance of Brown Capital Management in the previous quarter. In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
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