Twilio Inc (TWLO) Stock: Is the Party Over?

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twlo - Twilio Inc (TWLO) Stock: Is the Party Over?

Twilio Inc (NYSE:TWLO) — the most highly anticipated initial public offering in ages — had terrible timing coming the day before the Brexit shock.

twloAnd yet, TWLO stock barely skipped a beat.

After a 90% gain from its IPO price on Thursday, TWLO fell along with the rest of the market when the Brexit result hit. But the losses were only about 9%. While that might sound extensive, realize that ordinarily, the higher a stock flies in such a situation, the farther it falls. (It’s the same way for rebound trades too.)

TWLO — a company that that sends text messages on behalf of services like Uber and Facebook Inc’s (FB) WhatsApp — held up well Monday, too. And now that the market itself is in a bit of a rebound from the Brexit crash, Twilio is soaring once again. Shares gained as much as 18% in morning trading.

It’s sort of an extraordinary performance considering that the market is supposed to be in risk-off mode. Heck, the much-anticipated Line IPO, for instance, had to delay releasing its price range amid the Brexit fallout.

And the IPO market has been a bust this year (which is what made TWLO so special). Investors are increasingly anxious about bubble valuations in Silicon Valley’s venture capital pool. Successful tech unicorns have become scarce.

Much of Twilio’s initial run is due to these pressures. It’s a matter of supply and demand. There are just not enough hot tech IPOs these days, so the ones that do launch get to be homecoming queen by default.

It goes without saying that this is not a great example of the price discovery process, and that makes this post-IPO bet look riskier than usual.

Will TWLO Stock Become a Source of Profits?

Remember that “normies” like you and I can’t get in on the IPO price. They’re the ones who make the stock pop on the first day of trading as they trample one another to buy shares on the open market. This means that when charting a stock from its IPO, it’s actually more relevant to use the opening price.

On that basis, TWLO stock is up a phenomenal 30% since it went public last week.  (Or 120% from the IPO price, which you didn’t get.) As welcome as this is for shareholders, they need to remember that such gains also set it up to become a source of profits the next time the market has a Brexit fit. Margin calls happen, and good stocks get hurt.

It’s also important to remember that as much as the Twilio IPO was a great success, this is still a very small stock. With a market capitalization of less than $600 million, TWLO is on the smaller side of small-cap stocks. It has fewer than 18 million shares outstanding and not all of those are trading in the wild.

In other words, it’s not exactly a dreamland of liquidity. It’s primed for volatility. When this thing moves, it’s really going to move.

So what’s the point?

By all accounts, TWLO has great products and great partners. It’s managed well. It really and truly could be the next big thing.

But anytime a tiny stock pops 30% over a handful of sessions, at a time when the market is starved for anything that so much as smells like it, in the midst of a global crisis? Well, those are just some things to think about.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/twlo-stock-twilio-inc/.

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