- UBS has entered coverage of the communications software space, and Five9 (FIVN +1.5%) and Twilio (TWLO +1.5%) are making gains today after the bank started each at a Buy.
- In discussing communications software as a whole (a space with niches including Unified Communications as a Service, Contact Center as a Service and Communications Platform as a Service), it notes that pre-pandemic, the sector lacked a meaningful catalyst to push customers to the cloud - but now the opportunity is large, with cloud adoption in UC and CC markets in the single digits.
- Revenue growth has stabilized at a higher level over the past couple of quarters, but communications software names have been hard hit in the tech stock pullback, UBS says - creating a "favorable setup in light of inflecting and durable demands in a post-COVID world."
- Five9 is started at Buy with a $200 price target, implying 12% upside. And Twilio starts at Buy after UBS says it's set up for revenue growth of 30%-plus for the next several years.
- Even with growing competition from the likes of Microsoft, conversations with customers and partners suggest that Twilio is "well-positioned to benefit from both a healthy demand environment for its core cloud communications APIs as well as early signs that the high-growth, high-margin emerging opportunities are materializing," UBS says. Its $385 target implies 14% upside.
- Meanwhile it's starting Zoom Video Communications (ZM +0.2%) - which plays more in the UCaaS space - and RingCentral (RNG +0.7%) at Neutral.