Twilio gets bullish views at Wells Fargo, while Five9 and Sprinklr see rating cuts

Wells Fargo upgraded Twilio (NYSE:TWLO) to Overweight from Equal Weight, while downgrading Sprinklr (CXM) Five9 (FIVN).

Analysts led by Michael Turrin said they favor ServiceNow (NOW) over Salesforce (CRM) in large cap and Twilio over Five9 in small and midsize enterprises.

The analysts added that ServiceNow is among the few showing tangible AI monetization, already with over $100M Now Assist — an application which uses generative AI — run-rate in just four quarters and an upcoming November 2024 launch of CSM/ITSM agents in Xanadu an incremental catalyst ahead.

The firm has kept an Overweight rating on ServiceNow and raised the price target on the shares to $1,150 from $1,050.

In addition, the analysts said that they are waiting for more tangible signs behind Salesforce’s Agentforce — a platform which enables organizations to build and deploy autonomous AI agents for several business functions — and remain Equal Weight on CRM.

Turrin and his team said that while their field work increased their confidence in an eventual Data Cloud plus Agentforce product cycle, it’s likely captured by recent drift up in shares, noting that there is not enough evidence to gain near-term conviction in return to double-digit growth, supported by their base case of Agentforce adding $400M to FY27 revenue.

The analysts see more attractive opportunities where generative AI could be monetized earlier, for example Adobe (ADBE), Microsoft (MSFT) and ServiceNow, creating tough optics/setup for Salesforce’s stock into 2025.

Turrin and his team said they upgrade Twilio (TWLO) on new build cycle. The analysts noted that they believe Twilio can serve as a pick-and-shovel play for the next wave of AI-native front office and communications-powered generative AI applications. They want to highlight Twilio’s featured integration with OpenAI’s Realtime API, which allows developers to build low latency speech to speech AI agents into applications.

The analysts added that importantly, this positioning could include powering companies that decide to build in-house over buying out-of-the-box applications, like efforts telegraphed by T-Mobile (building in-house customer service chatbot to launch into production next year) and Klarna, among others.

The analysts view Twilio as a derivative call on AI agents, front office, and digital transformation due to positioning as a pick-and-shovel in the build cycle, further helped by Twilio’s developer mindshare and re-focused efforts on capturing the independent software vendor channel including AI natives.

The analysts expect AI agents to drive increased comms volumes over multiple years, which, in combination with potential improvement in cyclical exposures and mix-shift to margin accretive channels, should drive sustained gross profit growth for Twilio.

Five9 (FIVN): Meanwhile, Wells Fargo downgraded Five9 to Equal Weight from Overweight and reduced the price target on the shares to $40 from $55.

Turrin and the other analysts said that despite year-to-date underperformance and expectations being meaningfully reset following second quarter results, they were moving to the sidelines on intensifying competition (especially at the low-end where Five9 is the market-leader), the need to improve product positioning outside core voice contact center (digital channels and GenAI functionality beyond voice Intelligent Virtual Assistant, or IVAs), and deteriorating confidence in the company’s ability to execute on its move upmarket.

In addition, the analysts’ work indicates that customer preferences are starting to shift away from traditional voice/telephony and towards digital and self-serve channels— a newer category for FIVN and one that presents a tougher differentiation play.

They see minimal reason for a rating change in the near term until execution or AI narrative issues are resolved

Sprinklr (CXM): The firm also downgraded Sprinklr to Underweight from Equal Weight and lowered the price target to $6 from $8.

The analysts said they have moved to a more critical stance on Sprinklr due to rapidly evolving competitive dynamics in contact center as a service, or CCaaS, area where they expect market share (and certainly incremental dollars) to flow mainly to incumbent vendors. The analysts see the incumbent vendors as best positioned to use their respective data sets and market positioning to capture the agent opportunity set.

Turrin and his team added that this likely leaves less room for upstart players, such as Sprinklr, to capture share in CCaaS, and with a challenged core business, that they believe was over-monetized during COVID, they expect the company’s growth to further decelerate from here, with potential for more cuts to numbers, and go ex-growth.

Confluent (CFLT): The analysts kept an Overweight rating $35 price target on the shares. The analysts said the Confluent’s stock could benefit as data streaming emerges as key component of GenAI stack, notably as Kafka is considered a top 10 technology powering the GenAI tech wave.

The company stands to benefit as incremental development of real-time applications and more advanced models are built around modern data types (i.e. real-time), the analysts noted.