Should you buy Zoom or Five9 shares as the proposed merger collapses?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 1, 2021
  • Zoom’s and Five9’s merger plans collapsed Thursday evening amid ZM’s declining price.
  • The video communications shares surged more than 3% Friday, while Five9’s gained more than 5%.
  • Both stocks are steeply valued but Five9’s growth prospects are more exciting.

On Friday, Zoom Video Communications Inc. (NASDAQ:ZM) shares spiked more than 3% after its merger with Five9 Inc. (NASDAQ:FIVN) failed to materialise. Five9 pulled out of the proposed deal amid Zoon’s declining stocks price. Shareholders think Five9 will do better as a standalone company.

Analysts moved in quickly to upgrade Five9 shares, with Barclays issuing an overweight rating and a price target of $206. The firm thinks the failed merger redirects focus to fundamentals, which it believes could trigger an upside of 30%.

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Evercore and Wells Fargo also upgraded to outperform, while Piper Sandler, already with an overweight rating, named FIVN among its top picks.

Elsewhere, Morgan Stanley reiterated its buy rating on Zoom shares, stating that the failed merger was not critical to the price target of $400, implying a 50% upside potential.

Is Zoom still a buy?

Although Zoom shares trade at a steep P/E ratio of 81.45, the company offers potential growth if it can optimally monetise the massive user base acquired during the pandemic. Morgan Stanley analysts expect the company’s average revenue per user (ARPU) to increase.

Moreover, Zoom shares have plummeted more than 20% over the last two months, potentially opening an entry opportunity.

Source – TradingView

Rebound has room to run

Technically, Zoom shares appear to have recently bounced back to recover from oversold conditions. However, the stock is far from reaching overbought levels of the 14-day RSI, leaving room for more upward movement. 

Therefore, investors could target extended gains at approximately $287.60 or higher at $307.40, while $254.14 and $232.24 are crucial support zones.

Or is Five9 a better buy?

From a valuation perspective, Five9 shares trade at a steep forward P/E ratio of 118.94. As a result, value investors would probably choose Zoom. 

However, with analysts expecting Five9’s earnings per share to grow at an average annual rate of about 26.60% over the next five years compared to Zoom’s equivalent of 13.58%, FIVN could be a better option for growth investors.

Source – TradingView

FIVN targets a retest of 100-day MA

Technically, Five9 shares seem to have recently bounced off the key support level at $158.72. However, with the stock price yet to reach overbought conditions, investors could be looking for a retest of the 100-day moving average.

Therefore, they could target extended gains at about $174.73 or higher at $184.87. On the other hand, if the stock price pulls back, it could find support at $158.72 or lower at $148.58.

Five9 looks like the better buy

In summary, although both Zoom and Five9 offer exciting options for investors, Five9 looks more attractive given its earnings growth prospects.

Moreover, Zoom’s stock price decline is believed to be the primary reason why the merger failed. Therefore, investors may perceive Five9 as the more compelling stock.

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