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Twilio Could Be This Price ($236) Years From Now

Stock (Symbol)

Twilio (TWLO)

Stock Price

$236

Sector
Technology
Data is as of
September 10, 2020
Expected to Report
October 28
Company Description
Twilio Inc. offers Cloud Communications Platform, which enables developers to build, scale and operate real-time communications within software applications. The Company’s platform consists of Programmable Communications Cloud, Super Network and Business Model for Innovators. Its Programmable Communications Cloud software enables developers to embed voice, messaging, video and authentication capabilities into their applications through its Application Programming Interfaces (APIs). Its Programmable Communications Cloud offers building blocks that enable its customers to build what they need. Its Programmable Communications Cloud includes Programmable Voice, Programmable Messaging, Programmable Video and Use Case APIs. The Super Network is its software layer that allows its customers’ software to communicate with connected devices globally. It interconnects with communications networks around the world. Source: Thomson Financial
Sharek’s Take
David SharekTwilio (TWLO) is a fabulous company — and one of the top stocks in the world — but the valuation is high. The company is growing rapidly, but it isn’t making much money. This $236 stock is expected to make $0.10 this year, putting the P/E at 2359. So this seems like a great business, but the stock might be this price years from now.

Twilio is a software company that allows app developers to incorporate a little program called an API into a company’s app to allow employees to communicate with customers via phone calls, text messaging or video calls. It seems to me like this is the best software for companies to talk, chat or email with their customers. Twilio’s software can notify a diner when a table is ready, let a customer know their package has shipped, connect buyers to real estate agents, and let you know when your car has arrived. Big name clients include Uber, Airbnb, and Just Eat. It’s been estimated that 10% of the 20 million developers around the world are on Twilio’s platform. In February 2019 Twilio acquired SendGrid, the leading email API platform so Twilio can now incorporates email for its customers. Zoom and Peloton just added email to their platforms last qtr. Twilio isn’t dependent on a few big customers. Revenue from its top 10 customers was 15% of total revenue last qtr, with WhatsApp contributing 7% of revenue. One Fortune 50 company was having success with its “buy online, pick up in-store option” and selected Twilio to build a solution including texting, voice and email.

TWLO has a solid Estimated Long Term Growth Rate of 21% but the company is in its infancy in terms of profitability. That’s nice because its easy to grow profits at triple-digit rates on a qtrly basis. I had been looking to add TWLO to the Growth Portfolio but I haven’t been impressed with these numbers. Now, I’m on-the-fence about buying.

One Year Chart
Twillio’s programmable video allows healthcare professionals to do office visits to COVID patients, and news of this helped spark the stock after the company reported earnings 2QtrsAgo. That week, the stock jumped from $107 to $180. You can see the move here in the chart. The jump was on high volume, so I should have bought that week ~$180.

But after the company reported last qtr, the stock came down some. In this chart you can see that week as that’s the one with the 52-week high. Since then, the stock’s come down some. I don’t think investors were impressed with last qtr’s earnings.

Qtrly profit Estimates look poor, but the company has been beating the street and I think triple-digit growth will continue.

The Est. LTG of 21% is down from 45% last qtr. I think this stock can grow profits 100% or more over the next few years. But with a P/E of 2359 it needs to. The problem with TWLO is its “spending to grow”.

Earnings Table
Last qtr TWLO made $0.09 vs. $0.02 a year ago for 200% profit growth. That profit beat estimates of -$0.10. Active customer accounts increased 24%, just slightly higher than the 23% reported the prior qtr.

Annual Profit Estimates increased, but 2021 and 2022 estimates didn’t increased by much. The problem with TWLO is we can’t see if or when the company will make real money, like $1 a share. Maybe that’s in 2022, but we can’t guess that will be the case. Notice in 2020 estimates that earlier this year the profit estimate declined from $0.25 to -$0.17. That makes it hard for me to forecast future profits.

Qtrly profit Estimates look terrible. But I think management does that to beat the street and look good after reporting earnings that surpass estimates (hopefully).

Fair Value
My Fair Value is…well I have no Fair Value. Twilio has no profits. If I give this stock a P/E of 200 it would mean a Fair Value of $46 next year (which seems highly unlikely).

TWLO sells for 21x sales (2020 estimates). A great price to pay would be 10x sales, a high price in today’s market is 30x sales. So I guess this valuation is OK. Still, I would prefer more profits.

Bottom Line
Twilio (TWLO) possesses the leading app for companies to incorporate phone calls, texts, emails and now video calls into their apps. But the stock’s gone parabolic. This recent move higher is too-high-too-fast.

I’m really not impressed with this stock this qtr. It’s a “must own” for me, and its always too high. So I don’t own it. And profit estimates for the coming years aren’t good enough to get me to overpay.

Imagine if the company makes $1 in profits and gets a HUGE P/E of 236.  TWLO could be this price years from now. Or, another company like Agora could create a similar product. Thus, the stock is on my radar for the Growth Portfolio. I’t like to buy around $150, which seems like a good landing spot if the stock were to fall.

Power Rankings
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