This is a choice between BlackBerry Ltd (NASDAQ:BBRY), a company with a storied past in hardware that has pivoted in recent times to software and Twilio Inc (NYSE:TWLO), a company whose cloud-based communication platform is its entire reason for being. Do you buy BBRY stock, the wily veteran, or TWLO stock, the up-and-comer?
Both BlackBerry and Twilio aren’t making money, but both are hoping their cloud-based messaging platforms will soon deliver them to profitability.
Some experts are confident of CEO John Chen’s turnaround plan which includes releasing a BBM Enterprise software development kit (SDK) so that companies can secure their messaging in a cloud-based environment.
With the BBM Enterprise SDK, BlackBerry is able to go up against Twilio and while this might seem like a daunting task, the move does provide BlackBerry with an additional revenue stream.
That’s not lost on InvestorPlace contributor Dana Blankenhorn who recently suggested BlackBerry might actually make money someday, which would be good for BBRY stock. In fact, BlackBerry’s latest Hail Mary in cloud-based secure messaging could be part of Chen’s formula for success.
Does BBRY Stock Have the Edge?
I emphasize the word “could” because Blankenhorn goes on to say:
“By licensing old software, which only needs to be maintained, and by putting it into the cloud as a low-cost security offering, Chen hopes to resurrect BBRY as a profitable secure messaging vendor … I think BlackBerry’s dreams of competing with Twilio are just that — dreams.”
Ok, so, here we have BlackBerry with what appears to be a jerry-rigged cloud-based messaging platform and a market cap of $3.8 billion versus Twilio, a cloud-based communications platform created specifically for innovative companies like Uber and OpenTable, yet it has a market cap $1 billion less than BlackBerry.
A big concern for investors when it comes to companies providing cloud-based services such as Twilio’s is that it’s hard to become profitable when prices are kept low due to intense competition while the costs associated with acquiring new customers and keeping old ones remains high.
It’s okay to be skeptical.
However, analysts expected TWLO to lose $0.05 per share in the fourth quarter on a non-GAAP basis, but it actually delivered a small profit of $292,000 in Q4 2016 or $0.00 per share, while it lost $0.15 per share on a GAAP basis compared to a $0.48 loss a year earlier.
That’s significant because it suggests the company is moving closer to actual profitability.
Non-GAAP gross margins in the fourth quarter were 59%, 300 basis points higher from the same quarter a year ago; sales and marketing expenses were 19% of revenue, 500 basis points less; general and administrative expenses were 16% of revenue, 400 basis points lower; and its operating expenses were 61% of revenue, 800 basis points lower than a year earlier.
Twilio expects the top-line to grow by at least 31% in fiscal 2017 to $364.0 million, while the bottom-line loss on a non-GAAP basis should remain about the same as it was in 2016 between $0.15 to $0.18 per share.