To me, Twilio Inc (NYSE:TWLO) is one of the more promising long-term stocks in the market today. But right now, TWLO stock is stuck in the mud.
The company has a lot going for it. Its cloud communications products are revolutionary; its star-studded client base includes the likes of Facebook Inc (NASDAQ:FB), Aibnb, Home Depot Inc. (NYSE:HD), Salesforce.com, Inc. (NYSE:CRM), Uber and WhatsApp; and its sales are growing 60% year over year last quarter.
True, the company is not yet profitable, but that’s not unique for a cloud computing company that has been in business for less than a decade. Investors typically don’t grow too impatient with unprofitable companies if the sales growth is good — especially not in its first year as a public company.
So, what’s the problem?
Three Reasons TWLO Stock Is Down
As we all know, the company is not the stock. And Twilio stock has been stuck in technical purgatory for about four months — ever since it plummeted from $69 to $30 in a matter of six weeks.
That nosedive was the result of TWLO being overcooked after a huge post-IPO run-up, as the stock was trading at 21 times book value in late September. Since the beginning of December, TWLO stock has consistently traded between 8 and 11 times book value — a far more palatable valuation. And yet, investors haven’t been eager to snatch it up out of the bargain bin.
There are several reasons why.
For starters, Twilio’s sales growth is expected to be sliced in half this year, to about 33%. Losses are supposed to stay about the same. And there are no obvious short-term catalysts spurring TWLO stock, as it has been a little while (by its standards) since the company came out with innovative new products like Twilio Enterprise Plan, Voice Insights and Hello Vote.
Plus, there’s almost always a post-IPO hangover for tech companies with exciting products that got a little too pumped up by early investors as a result. Just ask Facebook. Eventually, TWLO will break out of this rut — and having just broken above its 50-day moving average, it’s already trending in the right direction.
Long term, there’s simply too much to like about the company — especially its dominant position in a potentially very lucrative niche of the cloud communications industry — for Twilio stock to stay down for very long.
An earnings beat, another big-name client, a new product — any one of those things could be what helps gets TWLO going again. Or, simply, better understanding of what the company does.
Anything related to the cloud can be a bit confusing to investors. And Twilio’s cloud communications model, which allows customers to send and receive voice and text messages via the cloud, is perhaps even more confusing because it’s essentially a new idea. The more people come to know the company and what it does, the more likely they’ll be to buy Twilio stock.
TWLO a Buy at Current Prices
My advice is to buy TWLO stock now that it’s trading above its 50-day average for the first time since early October, and perhaps start with a small position. If it breaks above three-month overhead resistance at $34, add to your position and buckle up for an ever bigger breakout.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.