Very few people know what Twilio Inc (NYSE:TWLO) does. Even fewer know that Twilio stock exists.
And yet, it took less than two months for shares of the cloud communications company (more on this later) to nearly quadruple from its $15 IPO price in late June. Naturally, with no earnings and lockup expirations still to come, analysts are increasingly pensive about TWLO’s short-term prospects.
Zacks Equity Research posed the question: “Is the Dream Run Over Too Soon for Twilio Stock?”
The Motley Fool warned that “Twilio Inc. Looks Dangerously Overvalued.”
That’s hard to argue. Twilio did, after all, lose $11 million last quarter (its first since going public), or $0.13 per share. It was $35 million in the red in 2015.
But today’s investment landscape is dotted with tech stocks that have repeatedly defied lofty valuations or overcome a glaring lack of earnings. Take Amazon.com, Inc. (NASDAQ:AMZN), whose stock tripled from 2012 through 2015 despite failing to turn a profit in two of those four years. Or Salesforce.com, Inc. (NYSE:CRM), which hasn’t turned an annual profit since 2011 but whose stock has risen over 150% over the past five years.
What has kept those companies afloat and their share prices rising is steady double-digit sales growth. Twilio has that. And it’s one of three key reasons why Twilio stock remains an excellent long-term buy even after quadrupling in its first two months of trading.
Twilio Stock Has Double-Digit Sales Growth
TWLO’s sales have grown by at least 70% in each of the first two quarters of 2016, on the heels of an 88% year-over-year increase in 2015 and a 78% bump in 2014. To put Twilio’s growth in perspective, the company did just under $50 million in sales in 2014. It did $64.5 million last quarter.
For the year, analysts estimate the company will do $255.6 million in sales, which would be a 53% increase from 2015.
TWLO Offers a Revolutionary Product
“Cloud communications” is a vague description of what Twilio does, so let’s expand on it.
TWLO provides a platform that allows customers to send and receive voice and text messages via the cloud. These communications capabilities can be built by a software developer directly into an application, enabling those apps to make voice or video calls and send text or IP messages to anyone in the world.
Twilio already counts Facebook Inc (NASDAQ:FB) Messenger, Airbnb, Home Depot Inc (NYSE:HD), Uber and Salesforce.com among its clients. And with its usage-based pricing model, Twilio makes money on every message sent, every phone call made and every authentication processed by its clients.
As CEO Jeff Lawson put it during the company’s recent earnings call, “When (our customers) succeed, we succeed.”
Twilio Has More Buyers than Sellers
Twilio isn’t just a young stock — it’s a young company, founded by Lawson in April 2008. As I mentioned in the opening, few people know about it or know exactly what it does. Only seven analysts currently cover the stock. Amazon.com and Facebook each have 39 analysts covering them.
With so little coverage and so few people understanding what the company does, there are way more potential buyers than sellers of Twilio stock.
Warren Buffett said, “Buy what you know;” the more investors get to know TWLO, the more likely they are to buy it.
The Bottom Line
If you at the chart, TWLO stock looks great in its infancy as a public company.
It has pulled back a bit recently since hitting new highs above $59, which could be a nice entry point. However, if you’re worried about a short-term pullback as the hype surrounding the stock’s stellar IPO subsides, you can wait to buy — perhaps until after the next round of earnings, though those won’t be out until early November.
But if you’re looking for a stock to add to your intermediate- to long-term portfolio, Twilio stock is the perfect combination of revolutionary product, double-digit sales growth and a young company that is just scratching the surface of its potential and its mainstream awareness.
If you’re one of those people, I say buy at any price, and thank me in three, five, 10 or 25 years.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
