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Why Twilio Inc (TWLO) Stock Is Still Too Expensive

Twilio reported strong customer acquisition growth, but the stock is still expensive and its bearishness is excessively high

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Application software supplier Twilio Inc (NYSE:TWLO) did not make much of a jump on the stock markets after reporting its fourth-quarter earnings. In fact, Twilio stock is still far from the $70.96 high it reached last year in September 2016. Bearishness is extremely high, as its short float stood at 66.3%. And despite all of this, the company reported soaring revenue and smaller losses and projected Q1 figures higher than consensus. However, these are not good enough reasons to pay over 10 times sales for TWLO stock.

Last quarter, Twilio reported 60% year-over-year growth, or $82 million in revenue. The company broke even, compared to expectations for a $0.05 per share loss. The company now forecast revenue of $82 million to $84 million, above a consensus of around $78 million.

For the full year, Twilio still expects a loss of between $0.15 to $0.19 per share. The loss estimates are higher than the consensus for a drop of $0.10 per share.

TWLO: Business Moat

Twilio’s moat is showing up in the financial results. Base revenue grew 73% YoY. Its platform business model added 2,000 new active customers in the quarter. Companies like Blue Cross Blue Shield, Capital One Financial Corp. (NYSE:COF) and one of the largest airlines are only some of the customers TWLO added. Businesses need call center technology that supports the growing telephone volumes. These companies count on Twilio for its monitoring capabilities and platform scalability.

Functionally, Twilio’s edge over competitors is providing the transformation from legacy hardware and physical networks to software. Although TWLO is losing money now, its profit margin is higher in software. Revenue will eventually exceed costs.

Twilio’s solutions add efficiency for its customers and improve the customer experience. First, the company added more offerings, including dual-channel recording. Second, it added private Ethernet and MPOS connections for customers to the cloud for VoIP (voice-over-IP). Third, APIs allow customers to add users to the solution in an easy and automated way. TWLO’s solution supports Microsoft Corporation’s (NASDAQ:MSFT) Azure Bot Service and, Inc.’s (NASDAQ:AMZN) Lex framework.

Partners such as Zendesk and, Inc. (NYSE:CRM) both support Twilio’s APIs.

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