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Equity Research 18.08.2021

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Equity Research 18.08.2021

TWILIO INC (TWLO)

Based in San Francisco, Twilio Inc offers Cloud Communications Platform for developers to build and operate real-time
communications. Its based software products include: Programmable Voice, Programmable Messaging and Programmable Video. All used through its APIs (Application Programming Interfaces), with the goal for its clients to leverage any types of communication tools to reach their customers TWLO sales were up by 74% y/y in 2019 to $1.1 Bn, as the firm keeps maintaining its growth at a faster pace (60% growth on average since 2017). As a matter of fact, the firm added over 114,000 new active customer accounts (ACA), totaling over 179,000 ACA worldwide (FY19). In addition, TWLO is spending most of its cash into R&D and marketing investing heavily on its core activity to generate positive margins over the next years. But for now, TWLO is not making any profit.

With record growth during the FY19, this year, the cloud communication platform TWLO, with its latest disclose earnings (Q2-20), a business that delivered a sharp increase in revenues, up 46% y/y reaching $401 M (vs $275 M prior year), linked to the addition of new customer accounts totalling over 200,000 ACA worldwide (up 25% y/y). Also, quarantine and self-distancing measures have increased demand from telehealth and work-from-home contact centers (online learning for students), as the main goal was to protect customers and employees from unnecessary risks and contact1. While TWLO other clients in the travel and hospitality industries saw a steep decline in business activities, pressuring their margins. Overall, the covid-19 have considerably quckened digital revolution in many industries, adding new business opportunities for TWLO in the future. To keep this momentum, TWLO is making several adjustments and spending heavily on marketing R&D software and talents, all accounting for 25% on average of its revenues, investing in its future growth. By Q3-20 and Q4-20, revenues are expected to reach around $390-400 M range (36-38% growth), in proportion with the addition of new customers in TWLO’s portfolio (220,000 ACA for FY2020).

In terms of financial resources, net cash is rising (up 3x to $1.3 Bn) which makes easier for TWLO to maintain its focus on of its cloud communication activity (customer engagement market) with steady operational spending (in proportion to growing revenue), as well as smart and strategic buyouts.
The acquisition of SendGrid2 for $3 Bn (Deal completed in Feb. 2019), a cloud-based e-mail delivery platform for transactional and marketing e-mails. A strategic acquisition enabling TWLO clients to reach their clients through various channels (voice, video, and e-mail), and adding new active customers to the business (+70,000 ACA). The acquisition of Segment3 (Oct. 2020), for $3.2 Bn, establishing into the customer data management market, building TWLO’s customer engagement platform and integrating its cloud communication portfolio.

SHARE PRICE – Since January 2020, the stock gained over 235%. The share price (14/10/2020) closed at $323.42 per share.
A stock pushed by stronger revenue growth, higher demand for real-time business communication platform (during this pandemic) and its recent acquisition. We expect TWLO revenue to grow by 36-38% to $1.5 Bn and achieving over 220,000 ACA, by the end of the year. With the acceleration of marketing and workforce spending investing by taking opportunities from this crisis towards digital transformation on behalf of its customers, TWLO can make a first positive profit in the short term (FY21-22), and consequently foresee shares to trade around $350-$400.

Written on 15/10/2020

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