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Is Twilio a buy after Q3 earnings?

It’s time to explore a popular software name. Here is the deep dive of $TWLO, otherwise known as Twilio.

Current Price: $290.99

52/Wk High: $457.30

52/Wk Low: $275.60

Market Cap: $51.9 Billion

3 Month Performance: -14.73%

Read below for the deep dive!

Twilio ( $TWLO ) is a major communication-platforms-as-a-service (CPaaS) company that offers customers, typically developers, a vast array of products that enable communication within applications such as live video, voice, and SMS communication.

Twilio enables these companies via application programming interfaces (APIs), which are in simple terms portions of code that provide developers access to unique features with ease, such as in Twilio’s case phone and video calls.

Specifically, Twilio specializes in two key API types, REST APIs and Software APIs. REST APIs allow individual systems to communicate with each other, initiating features via the internet.

On the flip side, Software APIs are specific portions of code that can be inserted and provide a specific feature to a developer, such as direct communication between two softwares with ease.

Exploring revenue generation, Twilio generates revenue via a pay-per-use model, in which clients are charged by use of service. For instance, Twilio charges for their Voice service by minute of use, in which companies pay for a specific amount of minutes according to Twilio’s set rate.

Key services offered by the company include Voice, Lookup, SIP Trunking, International, Client, TaskRouter, Network Traversal Service, and Messaging.

Source: Twilio Investor Relations

Exploring the company’s solutions, core solutions include Twilio Flex, Marketing Campaigns, and Twilio Frontline.

Shifting into the company’s customer base, Twilio boasts a strong rolodex of customers including Lyft, Stripe, CocaCola, AirBnb, Chime, Salesforce, Yelp, Dell, Twitter, Mercado Libre, Zendesk, Twitch, Uber, and so many more notable companies.

Source: Twilio Investor Relations

Rotating into management, Twilio is led by Founder, Chairman, and Chief Executive Officer (CEO) Jeff Lawson, who co-founded the company in 2008. Lawson is also a self proclaimed serial inventor, having previously founded or been a founder of NineStar, Versity, and Stubhub.

Behind Lawson is a strong management team, boasting experience from the likes of General Electric, SAP Concur, Google, Nike, Salesforce, and more. While management experience is solid, the team has witnessed shakeups of late.

In recent news, Twilio announced multiple management changes, including the resignation of COO George Hu, who led and scaled Twilio from a $300 million run rate to an impressive nearly $3 billion run rate today.

Furthermore, Twilio appointed Khozema Shipchandler as COO in immediate effect as of October 27th. Shipchandler previously held positions at GE and boasts over 20 years of financial experience.

Lastly, Twilio recently announced the addition of Eyal Manor as Chief Product Officer and Dana Wagner as Chief Legal Officer. Wagner will join Twilio effective December 13th. Both provide management with prior experience from the likes of Google, Square, and Impossible Foods.

Leadership was upbeat about the additions to management.

“As Twilio continues to deliver on its next phase of growth, it’s critical that our leaders have deep experience innovating at global scale while keeping privacy and trust at the forefront of everything we do.” CEO Jeff Lawson said.

Shifting into business wide news, Twilio recently announced the launch of Twilio Engage at the Signal 2021 conference. Engage is the company’s new growth automation platform that will help markets deliver and carry out omnichannel marketing campaigns.

Twilio Engage further expands the company’s reach into customer engagement and marketing, delivering to clients a strong and efficient array of tools that enables one-to-one customer engagement at scale with ease.

Management was upbeat about the launch.

“Until today, no single platform has made it possible to power personalized interactions across the entire customer journey. For years, marketers have been locked into one-size-fits-all marketing suites built for an entirely different era. Twilio Engage delivers true end-to-end customer engagement by giving businesses the best customer data, powerful messaging capabilities, and unlimited API extensibility,” CEO of Twilio Segment Peter Reinhardt said in a statement.

To read more about the most recent launch click the link below.

Shifting into the numbers, Twilio beat Q3 2021 expectations with an EPS of $0.01, better than the EPS analyst consensus estimate of $-0.14. On the flip side, EPS declined by 75% year-over-year.

Rotating into revenues, Twilio delivered their over twelfth quarter of revenue growth, with revenue totaling $740.2 million in Q3, representing 65% growth year-over-year. Quickly breaking down revenue, Twilio Segment delivered $52.3 million while Zipwhip provided $23.6 million in revenue.

Source: Twilio Investor Relations

Further sifting through revenue, $606 million in revenue was organic, representing 38% organic revenue growth year-over-year. Do note, investors were disappointed in the quarters organic growth, but that fear is likely short cited as organic growth has varied within a range of 36% up to 54% throughout the past nine quarters.

Exploring operations, Twilio reported a loss from operations on a GAAP basis of $232.3 million, representing a wider loss from operations when compared to the Q3 2020 level of $112.4 million.

On the flip side, non-GAAP income from operations totaled $8.2 million throughout Q3, representing an improvement over the same time 2020 level of $7.3 million.

While non-GAAP income from operations improved, gross margin unfortunately declined in Q3, landing at 54% compared to the slightly better 55% in Q3 of 2020. Do note, non-GAAP gross profit totaled $399.839 million throughout the quarter, representing an improvement over the same time 2020 level of $245.651 million.

Rounding out margins, non-GAAP operating margin landed at 1% in the third quarter, representing a decline from the same time 2020 level of 2%.

Shifting into customer metrics, Twilio reported a dollar-based net expansion rate of 131% in Q3, representing a weaker metric when compared to the same time 2020 level of 137%. Although, it is important to note that DBNER has remained within a range of 125% to 131% for over nine quarters.

Source: Twilio Investor Relations

For common knowledge, DBNER is obtained by dividing the revenue generated by a cohort of customers throughout a quarter. In essence, it is a measure of revenue expansion or contraction among the measured customer cohort, which in Twilio’s case is active customer accounts.

On the other hand, Twilio went on to report 250,000 active customer accounts as of Q3, representing a strong year-over-year improvement when compared to the Q3 2020 level of 208,000 active customer accounts.

Management was upbeat on the quarter.

“We delivered another quarter of strong growth at scale in the third quarter as companies continue to turn to Twilio in this digital-first world,” Lawson said.

Looking to the future management was upbeat, and reported bullish Q4 guidance. Leadership noted that Q4 revenue is expected to land within a range of $760 million to $770 million, representing 39% to 40% growth year-over-year.

Furthermore, Twilio is expecting to run a non-GAAP loss from operations of $45 million to $40 million and to report a non-GAAP loss per share of $-0.26 to $-0.23 throughout the fourth quarter.

Shifting into the balance sheet, the numbers are solid.

Total Debt: $1.016 Billion

Total Liabilities: $1.895 Billion

Total Assets: $12.977 Billion

Cash & Short Term Inv: $5.394 Billion

Breaking down the balance sheet, assets, cash, and short term investments have been consistently increasing going on five years, while liabilities and debt have been responsibly managed.

On the valuation front, Twilio does trade at a premium.

Price to Sales: 19.96x

Price to Book: 4.65x

Comparatively, Twilio currently trades in line with industry peers if not slightly below on a valuation basis.

Management has been effective but could always improve in the years to come.

Return on Equity: -9.95%

Return on Assets: -8.51%

Return on Invested Capital: -8.93%

Given the numbers the analysts are bullish with a mean price target of $426.25/share, representing a 46.48% upside from the current share price.

The high price target is $550.00/share, representing an 89.01% gain, while the low price target is $350.00/share, representing 20.28% upside.

The big money is quite involved with 83.20% of Twilio being owned by institutions. Top holders include The Vanguard Group, Morgan Stanley Investment Management, and Baillie Gifford.

On a technical basis, Twilio has been trending to the downside of late. According to the six-month charts momentum is pointing to the downside, with a tight MACD range around -9.25.

The six-month charts are also indicating an RSI of 36.52 and CCI of -75.82, both of which are on the low end. Do note, Twilio has declined over 14.5% throughout the past three months.

Exploring investor sentiment the bears worry of decelerating organic revenue growth, increasing competition, and a shakeup in management.

On the flip side, the bulls believe Twilio’s leading technology, strong leadership team, and continual consistency in revenue growth point to future upside. The bulls also cite a sharp increase in 2020 growth due to the global pandemic, and believe revenue metrics are not entirely comparable.

In short, Twilio ( $TWLO ) is a strong company with a reliable management team, solid balance sheet, leading technology, expanding customer base, growing revenues, and respectable margins coupled with a sizable market to operate within.


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.

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