Just when you think it can’t get any worse for Twilio Inc (NYSE:TWLO), it gets worse. On Tuesday, Twilio stock took a 5% hit, moving back within reach of a new multiweek low, and back within sight of an all-time public-trading low following its June IPO.
Not surprisingly, it was a bearish analyst comments that turned up the heat on a pullback that was already in place. Global Equities Research’s Trip Chowdhry thinks Twilio’s business model is so flawed that the company can’t be salvaged, prompting him on Tuesday to reiterate the firm’s bearish stance on TWLO stock.
Does he have a point?
“TWLO Is Toast”
Just for the record, Chowdhry’s exact words were:
“TWLO has zero chance to survive against the ‘Scale-out’ pricing structure of AWS-Connect. If history is any indication, AWS-Connect will resort to about two to three price cuts within 12 months, [and] TWLO has zero capacity to match the AWS-Connect Scale-out pricing. Pretty much TWLO is toast.”
No minced words there. And yes, the AWS he was talking about is Amazon Web Services, from e-commerce and cloud-computing giant Amazon.com, Inc. (NASDAQ:AMZN).
Twilio provides a variety of cloud-based telecom, texting and user-authentication services for companies that need to connect with customers but don’t want to commit to the physical resources required to make that happen. It can even serve as the middleman for video calls.
None of them are new ideas, but Twilio brings them together into one suite in a way that few are doing.
Others are doing it, though … or at least doing things close enough to what Twilio is doing to pose a competitive threat. That includes Zendesk Inc (NYSE:ZEN) and RingCentral Inc (NYSE:RNG).
Those aren’t the names Chowdhry is most worried about, though. He’s most concerned that current partner Amazon poses the biggest threat to Twilio stock. With the lines between partner and competition being blurred, Chowdhry ultimately thinks TWLO will be forced to lower its prices to the tune of 40% to retain customers. As he put it, “They are getting squeezed between the application provider and infrastructure provider.”
That prospect changes everything for TWLO stock holders, who were already holding on to a richly-valued position.
On the Other Hand …
Not everyone agrees that AWS Connect is going to be a threat to Twilio. Some see the e-commerce player’s deeper move into the business as one that will develop stronger partnerships and collaboration with companies like Twilio and RingCentral.
William Blair analyst Bhavan Suri is one of those optimists, saying last week:
“[Amazon] is leveraging Twilio along with other communication platform vendors to deliver voice capabilities… the entrance of larger players, such as Amazon, only validates the large market opportunity in the UCaaS (Unified Communications as a Service) market.”
Suri saw it as a symbiotic relationship for now, noting Amazon was using one of Twilio’s tools to deliver on one of its own telephony offers.
Conversely, Twilio is presently using Amazon’s SMS tool to deliver a service to Twilio customers. RingCentral and Zendesk are similarly integrating with AWS Connect, with Suri’s ultimate stance being that a rapidly expanding cloud-based telephony market will provide a rising tide that lifts all boats.
Maybe. But, it’s interesting — and telling — that Twilio customer Lyft went shopping for another CPaaS (Communications Platform as a Service) provider last month even before AWS Connect beefed up its multiple options. Lyft says it’s willing to utilize two vendors, though that seems unlikely given the sheer cost and headache and managing two separate service providers when one or the other can scale as much or as little as needed.
It’s a microcosm of the bigger headwind that’s starting to blow against owners of TWLO stock. This business is quickly becoming commoditized, and that’s never good for pricing.
It’s also not going to take AMZN much longer to realize that rather than relying on middleman, it can be the middleman.
Bottom Line for Twilio Stock
Looking past the theatrical nature of Chowdhry’s comments, he has a point: AWS Connect is more of a threat to Twilio than a potential partner. And, the more potent Amazon Connect makes other players in the business, the more they’ll all have to lower prices to remain competitive against a giant of a company that could (without any warning) become direct competition to the very telephony clients it’s currently supporting.
Indeed, it appears to have already started.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
