A combination of short selling, pressures of an imminent secondary offering and concerns over earnings have hurt the stock.
In addition, the company still appears to be very far away from profitability.
Investors should avoid the stock for now.
Shares of Twilio went on a tear after its June IPO, and the company reported impressive second-quarter results that included revenue growth of 70%.
But then the bottom fell out.
In the first week of October, Twilio filed a $400 million offering proposal. The sale seemed logical because sellers wanted to cash in on the 130% gains since the company's IPO.
By the time Twilio priced the offering at $40 a share, the stock was already under pressure. Many investors were disappointed by the fact that Twilio wouldn't gain a dollar from the offering, which was diluting equity.
Twilio's preliminary third-quarter results were largely overlooked, even though they appeared robust, showing a 56% gross margin, higher sales and a gross profit.
Short sellers began swarming around the stock as Twilio's price-sales ratio went to the high 20s.
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Some reports claimed that Twilio's shorted shares as a percentage of float as of Oct. 14 hit 67.67%.
The insider selling also frightened investors.
Chief Executive Jeff Lawson sold 830,977 shares at an average price of $38.6 a share last month. Chief Financial Officer Lee Kirkpatrick also sold 69,740 shares, while James McGeever, a director, unloaded 72,861 shares, and General Counsel and Secretary Karyn Smith sold 13,863 shares, among others.
This could be blamed on the lock-in expiration or a plethora of other factors but investors just weren't comfortable with this avalanche of sales. If anything, the short-selling argument was strengthened by insider sales.
The stock's high valuation continues to be a negative. At a trailing 12 months' price-sales ratio of 13.6 times, Twilio remains an expensive proposition.
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