Twilio Has Plenty of Growth Ahead of It

This high-growth communications platform is attractively priced.
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Twilio  (TWLO) - Get Report has seen a very volatile twelve months, with its shares rapidly appreciating earlier in 2019 before dropping in the latter part of 2019. Nonetheless, its stock is still up 19% over the past year.

This fast-growing Communications Platform as a Service (CPaaS) company stands head and shoulders above its peers. With high demand for its platform and strong reported figures backing its strategy, investors would do well to consider this stock as a worthwhile investment. Here’s why:

Recognized Leader Plows Ahead

Twilio aims to make communication between brands and their customers as frictionless as possible and is a leader in the CPaaS space. Instead of resting on its laurels, however, Twilio’s CEO Jeff Lawson declares that his company's ambitions are getting even bigger.

Lawson proclaims that Twilio is resolute in going further and enhancing its clients’ ability to engage with their customers in a totally seamless experience. 

Indeed, Twilio’s customers’ satisfaction can be witnessed in Twilio’s Q3 2019 dollar-based net expansion rate hitting 132%. This speaks to the success of its platform in not only landing and retaining its clients, but delivering incremental services, too.

Rapid Revenue Growth Ahead

Twilio’s growth has been strong, however, we should note its 2019 revenue has benefited in part from its acquisition of SendGrid in October 2018. 

Nevertheless, the latest figures from Q3 2019 report organic growth for Twilio of 47% compared with the same period a year ago, while SendGrid grew by 31% year-over-year. It should be noted that SendGrid accounted for less than 18% of its consolidated revenue for this period.

What’s more, Twilio’s CFO Khozema Shipchandler has been quick to note that these figures could have been better, but when Twilio is acquiring and growing at the speed it is, there are some inevitable mishaps, which the team is working hard to iron out. For instance, in Q3 Twilio had some errors in its billing processes which were onetime in nature. 

Balance Sheet Affords Twilio Plenty of Maneuverability

Bears question Twilio’s inability to generate strong cash flows and indeed the jury is still out on where its GAAP profit margins will ultimately fall. But Twilio can confidently point to its remarkable growth rates, and that for now, its goal is growing services and products and that cash flows will come later.

Given that Twilio’s balance sheet carries more than $1.3 billion in net cash; even after factoring its convertible notes, this implies that Twilio's has enough flexibility to execute on its strategy. 

Valuation – Paying up for High-Quality

Twilio Table

Twilio is being valued at less than 15x trailing sales. Although this number is higher than those of its peers represented in the table, there are good reasons for this. Firstly, Twilio is growing faster than its competitors, which reinforces the high demand for its platform. Secondly, Twilio is a more concentrated, pure-play PaaS than some of those peers listed. 

Moreover, it's rare to find leading PaaS companies trading for less than 20x trailing sales (for example, Okta  (OKTA) - Get Report trades at 27x trailing sales). Also, it's noteworthy that Twilio already trades at an approximate 20% discount compared with its valuation six months ago.


Demand for real‑time customer communication APIs (Application Programming Interface) is only going to increase in the near to medium-term. 

For now, Twilio is well positioned to participate in this sector’s huge tailwinds and its stock is not overly expensive. Investors would do well to consider this stock as part of a well-diversified portfolio.

Twilio reports its Q4 2019 results and guidance on Wednesday, February 5 -- stay tuned for updates.

Twilio is a holding in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells TWLO? Learn more now.