Twilio Inc.

TWLO Details

Twilio Inc. (NYSE: TWLO) is a cloud communications platform allows developers to create, grow, and manage real-time communications within software applications. The company provides a customer interaction platform that includes software for specific use cases such as account security and contact centres and a set of Application Programming Interfaces (APIs). It also provides a collection of APIs that allow developers to integrate phone, message, video, and email functionality into their apps.

Latest News:

• Launch of Twilio Ventures: On December 08, 2021, TWLO launched Twilio Ventures, a new USD 50 million fund to support the next generation of builders shaping the future of consumer engagement. Twilio Ventures will invest primarily in early-stage companies, with a few late-stage investments at the nexus of consumer interaction and developers. Its two critical investment areas are 1)Ecosystem investments, which are in the Twilio ecosystem that support the success of developers, partners, and solutions, paving the way for all types of builders, and 2) Frontier investments, which are in related theme areas that are developing unique solutions for improving customer engagement and experiences.

Q4FY21 Results:

• Surge in Topline: The company reported YoY growth of 53.76% in overall revenue to USD 842.74 million in Q4FY21 (ended December 31, 2021) from USD 548.09 million in Q4FY20, attributable to growth in Active Customer Accounts to 256,000 as of December 31, 2021, vs. 221,000 as of December 30, 2020.
• Expansion of Net Losses: In Q4FY21, TWLO's net losses expanded to USD 291.40 million from USD 179.35 million in Q4FY20.
• Cash and Debt Position: As of December 31, 2021, TWLO had cash and cash equivalents (including short-term investments) of USD 5.36 billion and total debt of USD 1.01 billion.

Key Risk:

• Voting Concentration Risk: Each share of TWLO's Class B common stock has ten votes, compared to one vote for each share of its Class A common stock. Thus, as of September 30, 2021, its executive officers, employees, and directors, and their affiliates, together held 21.6% of the voting power, which constrains the ability of other shareholders to influence corporate decisions.
• Dependence on Third-parties for SaaS Technologies : TWLO relies on third-party hosted SaaS technology to operate critical internal business processes like enterprise resource planning, customer assistance, and customer relations management. As a result, if these services become unavailable due to protracted outages or interruptions or because they are no longer accessible on commercially reasonable rates, it could harm TWLO' financials.

Outlook:

Q1FY22 Guidance (Source : Earnings Presentation, Q4FY21, February 09, 2022)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

TWLO's stock price has fallen 43.54% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 172.61 to USD 457.30. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 241.92.

Considering the significant correction in the stock price, robust topline performance, launch of Twilio Ventures, growth in Active Customer Accounts, encouraging outlook, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the closing price of USD 195.71, up 2.53% as of February 14, 2022.

Three-Year Technical Price Chart (as on February 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.