I’ve said before that I’m usually not the biggest fan of IPOs.
They can be a glaring example of how the game is rigged against individual investors. When a hot new IPO comes to market, only insiders can get their hands on shares. The bank backing the IPO then hypes it to the moon, driving up investor demand.
Eager investors who were locked out often jump in and buy on the first day of trading, which sends the stock soaring. Those insiders then make a quick exit, pocketing their hefty gains. Demand frequently dries up and the stock price falls, leaving all those individual investors holding the bag.
At first, Twilio Inc (TWLO) looked as though it was yet another example of this trend: on its very first day it soared 92%, then climbed another 180% soon after.
But given the strength of its recent earnings report, its unique mix of cloud services and the optimistic growth story pushing up its margins, it may be worth taking a second look at TWLO stock.
Despite its previous fanfare, TWLO hardly budged after reporting its first earnings report as a public company on August 8, which suggests that investors are being more realistic about where this stock is headed.
TWLO Stock Results
The company topped expectations with a loss of 8 cents a share, breezing past estimates of a loss of a 14-cent loss a share, on a 70% year-over-year increase in revenue to $64.5 million.
That massive spurt in revenue reflects the high demand for the kinds of services TWLO offers. Its client list boasts some of the most influential companies on the market, including Uber, Facebook Inc (FB), Nike Inc (NKE), The New York Times and various retailers pushing to increase digital sales.
It may sound belittling to say that TWLO stock is riding the coattails of these established companies — but that’s actually a good thing. Twilio is the bridge linking these cutting-edge businesses to the cloud, where more and more customer interaction is taking place. So as long as the businesses that use its services are successful, it should perform well, too.
While the valuation on the stock is relatively high — around 20X sales — I think TWLO stock will continue to trend higher as investors pile in ahead of the curve.
But if you’re still cautious about companies fresh to the public market like I am, it may be a better idea to play it safe and wait for a little more confirmation.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
