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Twilio Inc (TWLO) Stock Is at Its First Critical Pivot Point

Twilio stock - Twilio Inc (TWLO) Stock Is at Its First Critical Pivot Point

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I was wrong about Twilio Inc (NYSE:TWLO) — at least for a few weeks. In early November, before the election, I expressed hesitation about Twilio stock. After all, what else is there to say about a company that lost roughly half its market capitalization in 31 days?

Twilio Inc (TWLO) Stock Is at Its First Critical Pivot Point

Sure, TWLO shows significant potential from an industry standpoint. But at some point, investors want to see that potential turn into profits. At the very least, caution was warranted.

Donald Trump temporarily changed minds on Wall Street, however. Twilio stock saw a modest lift a day after the election. A couple days later, shares gained back some much-needed mojo. At the peak of the rally, TWLO definitively crossed the $37 threshold, making for an 18% move ever since I raised a red flag over the company.

So, my apologies. That caught me — and a number of analysts — by complete surprise.

But one of the unique aspects about the markets is that you don’t win or lose until you pull out. Those swing trading Twilio stock might have captured most of those profits. But the problem — that move was extremely short-lived. Just 24 hours after the peak price point, TWLO stock dropped into $35 territory. It also brought the tech company dead even with its pre-election close.

Now, shares are only 6% above its closing level from its initial public offering. Just a little over a month ago, that figure was 15% up. At its present mid-$30 range, Twilio stock has formed its first true support level.

Not even a half-year into its publicly traded existence, TWLO has created a critical inflection point in the markets.

Where Will Twilio Stock Go?

Twilio stock, TWLO stock
Source: Source: JYE Financial, unless otherwise indicated
For our purposes as investors, the inflection point is a pivot. It’s where momentum of either the positive or negative variety recedes for a time, only to set up its next move.

Looking at Twilio stock with objective eyes, a case can be made for either direction.

Those looking for certainty knocked on the wrong door. TWLO stock by any standard is a combustible mix of innovation, misdirection and hype. It can literally work one day, and not the other.

As InvestorPlace Feature Writer James Brumley notes, TWLO is a “technology company that’s turned a cloud computing platform into a robust telephony and messaging tool. Anything a business could want to do with, or through, a phone, Twilio can make it happen securely. That’s impressive.”

Furthermore, the explosive demand of its IPO inarguably indicates that there’s a real need that TWLO is filling.

Some analysts — including renowned Oppenheimer — see the long-term value of Twilio stock. Unless you’ve been living under a rock, the world is rapidly shifting towards digitalization. If industry giants like Microsoft Corporation (NASDAQ:MSFT) are rebranding their architecture to accommodate cloud computing, you can bet that smaller, nimbler tech companies are leading the cause.

Investing in TWLO stock, it would seem, is akin to investing in the future of society.

TWLO Stock Still Faces Steep Risks

But to get to tomorrow, you have to finish out today. That’s where the grandeur of lofty promises hits a reality check.

For one thing, earnings for Twilio stock have yet to break into positive territory, and they’re not expected to turn black until next year. So there’s little comfort for a stock that just recently collapsed.

Yes, revenue growth is impressive, but the nominal figures are not. It’s problematic when sales are counted in the millions but market cap is counted in the billions.

The overriding argument for me, though, is the technical sentiment. Overall recommendation ratings are steadily tilting towards “neutral” — in the corporate-friendly analyst language, that might as well be a “sell.” Broad consensus isn’t always correct. However, when even the company insiders don’t want to touch Twilio stock, you have to wonder about the risk.

At this juncture, it’s a coin flip.

TWLO has a hot business that is sure to pick up demand years from now. Simultaneously, it’s one of the worst tech IPOs this year. The psychological factor is that there are other options that have a definite bullish or bearish bias. Heck, even the vanilla SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has a high probability of giving you something positive every year.

It begs the question why anyone would settle for Twilio stock when there are more predictable trends to play. (But we all know the reason why.)

Ultimately, for every Facebook Inc (NASDAQ:FB), there’s a Twitter Inc (NYSE:TWTR). The feast-or-famine approach that describes TWLO stock to a tee might work for some, but definitely not for the majority of the investing public.

Twilio stock is a gamble. Which is OK if you’re a gambler.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2016/12/twilio-inc-twlo-stock-first-critical-pivot-point/.

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