Shares of cloud communications platform company Twilio Inc (NYSE:TWLO) have been crushed, falling some 23% over the last three months and 27% in six months. TWLO stock closed Friday at $28.38, down 0.63%. And if you bought and held Twillio stock when it reached its 52-week high of $70.96 on Sep. 28, you’re in the hole some 56%.
But all is not lost for TWLO. With some patience, Twilio stock can rebound 40%, reaching more than $40 per share.
Why All the Hype for Twilio?
Headquartered in San Francisco, TWLO was one of the hottest tech IPOs last year raising $150 million after its shares skyrocketed from its initial price of $15. The strong buying interest in Twilio stock did something else too: It attracted tons of short sellers — many of whom saw the inflated price-to-sales ratio of 20+.
While the company’s texts service can do things like generate passwords, remind users of appointments and confirm phone numbers, the short sellers understood TWLO was not going to profitable until, at best, 2018. And given the extensive period, there was going to be tons of execution risk that could affect Twilio stock. The shorts, who profited off of the massive decline in TWLO stock from its 52-week high, were right.
The pendulum — as they say — has begun to swing the other way. Twilio stock has risen more than 3% since Jan. 3. And the company’s prospects hav begun to improve, thanks to its list of prominent clients, which includes, among others, Facebook Inc (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX), Twitter Inc (NYSE:TWTR), Salesforce.com, Inc. (NYSE:CRM).
What’s more, in December TWLO, which uses Amazon Web Service to host its platform, announced it had extended its partnership with Amazon.com, Inc. (NASDAQ:AMZN). Twilio stock rose some 16% on the news. Why? Aside from allowing TWLO to provide voice notifications and SMS messages via the Amazon Simple Notification Service (SNS), the partnership gives Twilio even more exposure to Amazon’s massive customer base.
Combined with its new Enterprise Plan subscription product, which offers advanced security, access management and administration features for its existing customers, TWLO’s costs of acquiring new clients will begin decline. These factors can not only increase Twilio’s revenues in the quarters ahead, but also boost the company’s profits due to lower costs — a trend that has already begun. While the company lost $3.4 million in the third quarter, it marked a significant improvement from the $4.6 million loss in the second quarter.
Bottom Line for TWLO Stock
Twilio will report its fourth-quarter fiscal 2016 earnings results on Feb. 7. The company is expected to post a 6-cent loss, while revenues are expected to rise 62% year-over-year to $70.14 million. And with TWLO’s projected 22-cent per share loss for fiscal 2016 expected to narrow to 10 cents in fiscal 2017 on revenue 352 million, Twilio stock deserves a higher price-to-sales multiple of 15 (its current multiple is around 10). This puts TWLO stock at $40, or 40% higher.
As of this writing, Richard Saintvilus did not hold any a position in any of the aforementioned securities.
