Twilio Inc (TWLO) Stock Is the Ultimate Contrarian Play Now

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TWLO - Twilio Inc (TWLO) Stock Is the Ultimate Contrarian Play Now

Wednesday did not mark a very good day for Twilio Inc (NYSE:TWLO) bulls. Shares plunged 26% despite the company beating on earnings-per-share and revenue expectations for the most recent quarter. Although, TWLO stock is up 2% in early morning trading, that does little to comfort those who took a punch to the gut.

Twilio Inc (TWLO) Stock Is the Ultimate Contrarian Play Now

When Twilio came public in summer 2016, it quickly shot higher. After pricing its IPO at $15, it opened for trading at $24 and quickly climbed above $28 in its first day. It didn’t take long for shares to go into “rally mode,” topping out near $70.

What Happened to Twilio?

After reporting a top and bottom line earnings beat, many investors were confused to see TWLO stock down so much. But a look at the guidance and commentary says it all. Twilio’s earnings and revenue guidance for Q2 and the full year came in below Street expectations. That isn’t good.

The other problem? Uber. The ride-hailing app represented 17% of Twilio’s revenue at the end of Q4. In Q1, that share fell to 12% and management expects that figure to continue falling. When the top customer represents almost one-fifth of sales and puts on the brakes, that’s not good.

While this may be unrelated to the stock, it bothered a lot of investors to see management selling stock ahead of the quarter. A slight decline wouldn’t have been an issue. But insider selling ahead of a 25% haircut certainly doesn’t send a good message.

On the positive side, TWLO has a pretty diverse customer base behind Uber and its second-largest customer, WhatsApp. After those two, no one else represents more than 2% of revenue. On another positive note, Twilio added a new chief operating officer. Previously serving 13 years at Salesforce.com, Inc (NYSE:CRM), including four years as its COO, George Hu now joins TWLO.

So What Now With TWLO Stock?

A lot of investors, particularly the hardcore bulls, are calling this latest plunge an amazing buying opportunity. Maybe they are right — or maybe they are just trying to convince themselves that it’s true.

Admittedly, there is some good news on the charts, but there’s also some bad news. On the positive side, the lows around $24 (purple line) are holding as support. This level came on the first day of trading and hasn’t been hit until Wednesday. If this area holds, it gives investors a level to trade against.

TWLO, TWLO Stock, Twilio, Twilio stock
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Source: Stockcharts.com

On the negative side though, the stock had found solid support at $27 (teal line). Now that the stock has broken below that level, it will more than likely act as resistance.

Unfortunately, TWLO stock did rally from its lows on Wednesday, but once it hit $27, it quickly retreated and closed near $25.

How can we trade it? Bullish investors can buy the stock at current levels and use a tight stop-loss just below $24. This gives investors downside risk of $1 and plenty of potential upside.

Please note though, it’s important to use discipline with Twillio stock. If $24 fails as support, the stock could tumble into a free-fall. Will it retest its IPO price of $15? You never know. That’s why discipline is paramount in this scenario. A lot of damage was done with Wednesday’s decline, so use caution if deciding to play long.

Conversely, investors could justify a short position in TWLO stock if $24 support fails. In this case, Short sellers could use $24 as their stop-loss on the upside.

Bret Kenwell is the manager and author of Future Blue Chips. He can be contacted on Twitter via @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/twilio-inc-twlo-stock-ultimate-contrarian-play/.

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