Cloud communications platform company Twilio Inc (NYSE:TWLO), which has lost some 21% of its value over the past thirty days, is an intriguing name to keep an eye on for investors who are looking for a contrarian stock with potential for huge bounce.
TWLO stock has fallen almost 13% year to date, thanks to a 30% decline following its fiscal first-quarter earnings results earlier this month.
The shedding of nearly a billion dollars in market cap occurred even as the company beat first-quarter estimates on both the top and bottom lines. The problem? Twilio issued guidance for the current quarter and full year that widely missed Wall Street’s views.
For the second quarter, which ends in June, the company is guiding to revenue of $85.5 million to $87.5 million, below consensus for $87.6 million. Plus, the company sees base revenue of $81.5 million to $82.5 million, yielding an adjusted per-share earnings loss of 11 cents to a loss of 10 cents, versus consensus for a loss of 8 cents.
CEO Jeff Lawson alluded to “changes in the relationship with our largest customer” — which many Street experts believe is Uber — but “momentum across the business continues to be strong, with a 42% year over year growth in Active Customer Accounts and a 62% year over year growth in Base Revenue during the quarter.”
All told, while Twilio did show in the just-ended quarter that it has graduated from hype to hyper growth, the fact that Uber (presumably) can adversely impact its operations to such an extent underscores the inherent risk that still remains with TWLO stock.
Reasons to Like TWLO Stock
At the same time, however, the San Francisco-based company is more than just an Uber-centric shop. TWLO boast some of the largest customers in tech, including Facebook Inc. (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX), Twitter Inc (NYSE:TWTR) and salesforce.com, inc. (NYSE:CRM).
As such, the company’s base revenue guidance is projected to rise well above 50% — which excludes revenue from “Variable Customer Accounts.” That suggests that it not only does it plan to better diversify the revenue stream, but shows that the company’s platform — which provides features such as voice calling, SMS, chat and video — has become a leader in its space. During the second quarter, its active customer accounts rose to 40,696 from last year’s total of 28,648.
Need another reason to like Twilio? How about the fact that CEO Jeff Lawson and Twilio board member Jim McGeever have been actively buying TWLO stock on the recent dip. According to recent insider trading disclosures, Lawson last week bought 100,000 shares at an average price of $23.43. Meanwhile, McGeever, executive vice president of NetSuite, a subsidiary of Oracle Corporation (NYSE:ORCL), bought a modest 10,000 shares at an average price of $23.19.
Those were well-timed buys, considering that the Twilio shares are now above $25. “Actions sometimes speak louder than words, in our opinion, and we really like seeing this vote of confidence from Mr. Lawson and Mr. McGreever,” said Patrick Walravens, JMP Securities analyst referring to the insider buying.
JMP has a “market outperform” rating for TWLO stock with a $33 price target, suggesting 31% gains. And with the shares still down 64% from their 52-week high of $70.96, the risk-reward ratio seems too compelling to pass up.
Bottom Line for TWLO Stock
With consensus 12-month price target calling for $33 per share, suggesting 31% returns, TWLO should be owned by investors willing to hold for the next 12 to 18 months.
And with the shares still trading about 10 times book value, TWLO stock now looks even more appealing the basis of improved fundamentals, suggesting that the market grossly overreacted from its conservative guidance.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
