Twilio Inc (NYSE:TWLO) announced Mar. 1 that it had filled its vacant COO position after a three-month search hiring former Salesforce.com, Inc. (NYSE:CRM) COO George Hu. This is a big deal for the company and Twilio stock because the former CRM executive was an integral part of growing its SaaS business to $5 billion in revenue. More importantly, Hu brings an understanding of how to grow the enterprise segment of TWLO’s business — something it has only recently begun to attack.
According to Twilio CEO Jeff Lawson, “George helped build Salesforce into the leading cloud [Software as a Service] and platform company, growing it to more than $5 billion in revenue during his tenure … I’m excited to have George’s operational expertise and go-to-market skills helping us reach Twilio’s next stage of growth.”
Hu spent 13 years at CRM, the last four as COO before creating and selling Peer, a workplace feedback tool, to Twitter Inc (NYSE:TWTR) in April 2016.
Here we have two stocks, CRM which makes a little bit of money from a whole lot of revenue and TWLO that loses a whole lot of money from a little bit of revenue.
Hu’s job is to change this reality over the next two to three years by convincing larger businesses, not just startups and developers, that Twilio’s cloud platform is enterprise worthy. Recent additions to its customer roster include Blue Cross Blue Shield and Capital One Financial Corp. (NYSE:COF) who’re using TWLO’s platform to improve call center performance.
What Can Hu Bring to Twilio Stock?
Twilio stock is going to need every marquee customer the company can lay its hand on. The company expects a 2017 non-GAAP loss for TWLO stock of between $0.15 and $0.18 per share — if it wants to become profitable anytime soon.
InvestorPlace writer and IPO Playbook Editor Tom Taulli recently suggested investors should wait to get TWLO stock at cheaper prices because its current valuation of more than 10 times sales is crazy when you consider that other enterprise cloud operators trade for 6 to 7 times sales. Heck, even CRM trades at 7 times revenue.
Furthermore, Salesforce expects to make at least $1.27 per share on a non-GAAP basis in fiscal 2018, 26% higher than its $1.01 per share in fiscal 2016. So, on the surface, it would appear that CRM stock is a better buy than Twilio stock, but if you think further down the line, it’s possible that TWLO could actually be the better business.
Salesforce has been in business for 18 years, while Twilio has only been around for 9 years; a lot can happen over the next nine years. By comparison, Salesforce after nine years in business had $748.7 million in revenue and $20.3 million in operating profits, while TWLO had a $41.3 million GAAP loss in fiscal 2016 on $277.3 million in revenue.
At the same point of development — nine years after launch — CRM increased its revenue year-over-year in fiscal 2007 by 50.6% compared to 66.2% for Twilio stock in fiscal 2016.
Salesforce stock was valued at the end of 2007 at 11.8 times sales compared to 1.5 for the S&P 500, 7.9 times the index’s price-to-sales ratio. Twilio stock, on the other hand, finished 2016 valued at 9.9 times sales, 5 times the index’s P/S ratio.
If you value TWLO stock at 11.8 times sales, the same as CRM stock at the same point in development, its market cap should be $3.3 billion [2016 revenue of $277.3 million times 11.9] or $37.50 per share [based on 88 million shares outstanding].
Bottom Line on TWLO Stock vs. CRM Stock
While Salesforce might be the bigger company, I believe the hiring of George Hu is the beginning of a huge growth phase for Twilio stock; although it’s not making money at the moment, I see a bright future in enterprise cloud services.
TWLO stock is the better buy.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
