We recently compiled a list of the 8 Worst Performing Tech Stocks in 2024. In this article, we are going to take a look at where Five9, Inc. (NASDAQ:FIVN) stands against the other Worst Performing Tech Stock in 2024.
The Tech Sector’s Resilience Amid Economic Challenges
One of the most popular sectors of the stock market is technology. The sector boasts an impressive track record of explosive returns and the possibility of even greater returns. Likewise, the industry has lived up to expectations in 2024, going by the Nasdaq 100, rallying 21% year to date.
The impressive rally in the tech sector comes against the backdrop of investors shunning high interest rates and inflation to bet on stocks well poised to benefit from the next industrial revolution. With artificial intelligence in the early stages of development, tech stocks with exposure to the burgeoning sector have exploded, with some becoming trillion-dollar empires.
READ ALSO: 10 Most Promising Future Stocks According to Analysts and 10 Most Promising Growth Stocks According to Hedge Funds.
In a note to investors, analysts at Mizuho have already noted that generative AI “is igniting growth and disruption across multiple markets, pushing the frontiers of innovation and productivity.” That’s because AI servers are supporting the development of infrastructure that powers the AI revolution.
The rally in the technology sector has persisted even with economists and analysts questioning the global economy’s health. China’s economy is slowing down to the extent that the government, injecting some stimulus and reforms, has done little to rattle investor’s sentiments on tech stocks.
According to Ray Dalio, the founder of Bridgewater Associates, China must carry out a “beautiful deleveraging” in addition to its recent stimulus measures and reforms to avoid serious debt issues.
“I think the changes that are taking place are terrific changes, but you still have to do the debt restructuring. You need to do it correctly, and that’s as part of a restructuring. That becomes the challenging part of it. I think that will be the test,” Dalio said.
The Impact of High Interest Rates and Inflation on Tech Stocks
Likewise, the US economy has shown signs of lethargy, depicted by a slowdown in the labor and manufacturing sectors. The US Federal Reserve conducted a 50 basis point rate cut to engineer a soft landing and avert recessions, underlining that all may not be well in the world’s largest economy.
Similarly, the International Monetary Fund Managing Director Kristalina Georgieva has warned that high debt and low growth pose significant risks to the global economy, which could hit the equity markets.
While notable progress has been made in supporting the global economic recovery, the IMF chief believes there are challenges in servicing debt that could pose a significant danger to the worldwide economy.
“It’s not yet time to celebrate,” she told Karen Tso. “When we look into the challenges ahead of us, the biggest one is low growth, high debt. This is where we can and must do better,” she added.
Nevertheless, investors have continued to shrug off all these concerns, buoyed by impressive and record-breaking earnings and revenue growth in some of the biggest tech companies. Soaring geopolitical tensions in the Middle East and the uncertainty triggered by the upcoming US election have done little to sway investors’ sentiments about tech stocks.
Nevertheless, mega-cap technology stocks have started to deflate after a dazzling run. Fresh concerns about the state of the economy accompanied the most recent downturn. The valuations of formerly high-flying stocks and the market as a whole continue to be the larger challenge, though, as most economists believe there is little chance of a recession and that rate cuts from the Federal Reserve are imminent.
This is a rotation under the hood, which means that investors are moving from recent winners to names that have been underperforming. In this instance, growth stocks have generally given way to value stocks.
Likewise, amid the resilience of the broader tech sector, not all companies have delivered record-breaking results and generated significant returns for investors. As a matter of fact, some stocks have underperformed in the broader industry, shedding more than 50% in market value.
With that, let’s look at the 8 Worst Performing Tech Stocks in 2024.
Source: unsplash
Our Methodology
To compile our list of the worst-performing technology stocks in 2024, we ranked all technology firms based on their year-to-date performance and selected the top 15 with the largest year-to-date losses. Finally, we ranked the stocks in descending order based on their year-to-date losses.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Five9, Inc. (NASDAQ:FIVN)
Year to Date Gain: -60.09%
Number of Hedge Fund Holders: 34
Five9, Inc. (NASDAQ:FIVN) has carved a niche as a provider of intelligent cloud software for contact centers. It offers a virtual contact center cloud platform that delivers applications that support customer service sales and marketing solutions.
The company has been facing stiff competition in cloud solutions, resulting in the stock sentiments taking a hit and tanking 60% year to date. The selloff has seen the company emerge as one of the worst-performing tech stocks in 2024.
The stock has been under pressure in the market on the company, facing a series of setbacks, including a reduction in revenue guidance that has triggered concerns about underlying growth. The company has also been forced to carry out a series of layoffs to strengthen its profit margins as it faces competitive pressures.
In 2024, investment firm Anson Funds Management amassed a significant stake in the call center software company and began an activist campaign. The investment firm is urging the company to consider a potential sale of the entire business as one of the ways of unlocking hidden value after years of underperformance.
The sales push came after Five9, Inc. (NASDAQ:FIVN) pushed back on a deal to be acquired by Zoom Video Communications, the maker of virtual meeting software. Nevertheless, it has since acquired Acqueon, a firm specializing in proactive outbound Omni channel customer engagement, and it is looking to expand its artificial intelligence offerings to bolster its growth metrics.
The push to acquire Acqueon also aligns with Five9’s plans to manage its expenses and improve profitability as it expands its footprint in India to pursue new growth opportunities and improve gross margins.
By the end of the second quarter of 2024, the number of hedge funds with positions in Five9, Inc. (NASDAQ:FIVN) had decreased to 34, down from 38 in the previous quarter. Among these hedge funds, Alyeska Investment Group emerged as the largest shareholder, holding a significant position valued at $94.22 million.
In its Q2 2023 investor letter, Brown Capital Management Mid Company Fund provided the following insight regarding Five9, Inc. (NASDAQ:FIVN):
“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.”
Overall FIVN ranks 2nd on our list of 8 Worst Performing Tech Stocks in 2024. While we acknowledge the potential of 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 more promising than FIVN, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.