Back in October, the CEO and co-founder of Twilio Inc (NYSE:TWLO), Jeff Lawson, was on the front cover of Forbes and the headline boasted: “The World’s Sexiest Stock.” A few months before, the company had pulled off a red-hot public offering, with the shares nearly doubling.
But unfortunately, the Forbes story would essentially mark the peak of Twilio stock, which would plunge from $65 to $24.
Ironic, huh? Definitely. But there was more. Consider that the Forbes article also indicated that Twilio stock could be vulnerable because of customer concentration. But the author noted that “most of the growth still [comes] from smaller accounts” and “Wall Street appears unconcerned.”
Worries for Twilio
Well, as seen with the latest earnings report, the biggest problem with TWLO stock is actually customer concentration! The company had to lower its guidance because of the deceleration of revenues from Uber. From Q4 to Q1, the customer’s spending went from 17% of total revenues to 12%.
And it appears that the trend will continue. Uber has been developing some of its own cloud-based communications systems and is starting to use solutions from alternative vendors.
On the news, analysts from Pacific Crest downgraded Twilio stock from “overweight” to “sector perform.” They think that growth may not perk up until the second quarter of next year.
Yet this may prove too optimistic for Twilio stock. The reason is that Uber may not be a one-off. Instead, the situation could represent serious problems with the core business of TWLO.
After all, why is Uber looking elsewhere? Could it be that there are more cost-effective alternatives? If so, this should be scary for investors in TWLO stock. In other words, the company’s technology may be undergoing commoditization.
It’s also important to note that Uber is not the only company that represents a sizeable portion of Twilio’s revenues. Note that Facebook Inc’s (NASDAQ:FB) WhatsApp came to about 9% in 2016.
As for the competitive environment, there are various tough rivals that TWLO must contend with. They include Cisco Systems, Inc. (NASDAQ:CSCO), Vonage Holdings Corp.’s (NYSE:VG) Nexmo, CallFire and Bandwidth.com.