Just because a company is solid does not mean it will be a good IPO — at least for those investors who buy in the aftermarket. A great case study of this is actually Twilio Inc (NYSE:TWLO). Back in late June, the company pulled off its offering at $15 a share and Twilio stock quickly ran up to a nosebleed $69.
Yet gravity took hold. Now, TWLO stock is hovering at about $32.
Although this might sound ugly, there can certainly be opportunities to bottom-fish with fallen IPOs. The question is … does Twilio stock fit the bill?
Admittedly, it’s tough to find fault with the company’s business. TWLO stock is in no way like some of the other IPOs that have imploded, like Twitter Inc (NYSE:TWTR), Fitbit Inc (NYSE:FIT) or GoPro Inc (NASDAQ:GPRO). These operators truly have fundamental issues, and they have paid the price.
So it does seem very unlikely that Twilio stock will plunge to the single digits.
Rather, the company is the clear leader in cloud-based communications systems. Features include SMS, chat, voice calling and video. More importantly, TWLO has been smart to allow developers to embed the technology easily within their own apps. Basically, there is only a payment charged when there is meaningful usage.
Twilio has also been leveraging its platform into the valuable enterprise market by adding sophisticated authentication and security features (a key to this has been obtaining ISO 27001 certification, which is a global standard for security).
Just some of the recent marque customers added include Blue Cross Blue Shield and Capital One Financial Corp. (NYSE:COF). Interestingly enough, it looks like one of the biggest market opportunities for TWLO is the call center segment, which has suffered from lagging technology.
So, it should be no surprise that the growth for Twilio has been strong. In the latest quarter, revenues soared by 60% to $82 million.
The Risks for Twilio Stock
Despite the strengths of the company, I still think patience may get you a better valuation. To paraphrase an old saying: TWLO may be a good company, but it is a bad stock.
In fact, short sellers seem to think so. Keep in mind that about 18.5% of the float of Twilio stock is in short positions.
So why the bearishness? There are many reasons. As with many other fast-growing tech companies, TWLO continues to report losses, even though they have been coming down. In the latest quarter, the company reported a GAAP loss from operations of $12.8 million.
Next, there remains substantial customer concentration. Last year about 30% of revenues came from only 10 customers. In fact, Facebook Inc’s (NASDAQ:FB) WhatsApp accounted for 9% and Uber for over 10%.