Twilio Inc (NYSE:TWLO) has been riding on a cloud ever since it posted strong earnings earlier this month and it’s not clear when TWLO stock will come back to Earth.
In a year that’s been light on initial public offerings, TWLO has been a standout star.
The company, which provides cloud communications services, has more than quadrupled since pricing at $15 a share.
More recently, TWLO is up about 20% since its first quarterly report as a publicly traded company less than a month ago. And TWLO shows no signs of slowing down.
It’s practically a poster boy for momentum stocks. With clients such as Facebook Inc (NASDAQ:FB), Nike Inc (NYSE:NKE) and Uber, TWLO has become a fashionable stock pick in a slow-growth market.
Outsized growth and high-profile clients are terms that speak to the Street. But execution goes further than anything else. With a single quarter on the books, Twilio didn’t disappoint. Second-quarter revenue soared 70% year-over-year to of $64.5 million.
Analysts on average were looking for the top line to hit $58.2 million. That’s a big beat. Even more encouraging, active user accounts rose 45% year-over-year to roughly 31,000.
TWLO delivered better-than-expected news on the bottom line as well. The company reported an adjusted loss of 8 cents a share. That was narrower than a year-ago loss of 11 cents a share. Wall Street was looking for a loss of 14 cents a share.
Ordinarily, it would be too late to buy a stock that’s put up such huge gains in so short amount of time. As a momentum play, however, this may not apply to Twilio stock.
TWLO Fundamentals Take a Back Seat
TWLO has had its share of drawdowns, naturally, but they reversed trend after just a handful of sessions. That’s something you want to see in a momentum stock. Furthermore, shares continue to make higher lows and higher highs.
Most of Wall Street advises clients to stand pat on this name. Of the eight analysts covering the stock, seven call it a “hold.” The remaining analyst rate Twilio a “buy.”
True, we’re still a long way from fund managers’ buying momentum names for end-of-the-year window dressing. A lot can happen between now and then. But if Twilio can avoid a selloff, it’s reasonable to expect an increase in demand for TWLO stock as we get nearer to closing the books on 2016.
At the same time, if Twilio delivers another blowout quarter in November, that will give it two strong tailwinds heading into the end of the year. The acquisition of WebRTC media processing technologies a couple days ago was a catalyst for the current run. The size of the move, however, suggests TWLO stock is driven more by technicals than fundamentals.
Just be aware, momentum stocks can fizzle out at almost anytime. Bulls in TWLO need to be nimble and maintain short horizons.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
