Only a determined fool will argue with the fact that cloud computing is the future. This is the reason why the titans of industry are increasingly focusing on this digital revolution.
I suspect that it’s also the reason why so many people fell in love with cloud communications app maker Twilio Inc (NYSE:TWLO). But to play with the big boys, you have to have big boy resources. Unfortunately, TWLO stock comes up short.
I credit Twilio for making the most of its opportunities. Right from the get-go, TWLO stock appeared the rare technology-related initial public offering that was worth the hype. On its first day of trading, shares closed up at $28.79, up nearly 92% from its IPO price.
Toward the end of September last year, TWLO briefly breached the $70 mark. Unfortunately, that was the last hurrah. Since then, the markets delivered a Negan-style beat down.
To be clear and upfront, I love the technology, but not the opportunity. When I started working for myself, the amount of spam emails and telemarketing nonsense must have increased ten-fold from the time I was punching a clock. Twilio offers services that help eliminate these issues, and many more. So I agree with InvestorPlace contributor Dana Blankenhorn that the company leverages tremendous intelligentsia.
But on the flip side, I can’t ignore the markets’ message. At its current price, Twilio stock essentially hasn’t moved much since its first few days of trading. Investors that are making money on TWLO are doing so through short-term trading.
For instance, if you bought shares at any time in 2016, an 89% chance exists that you’re underwater against the time of writing price of $28.84. Unfortunately, I’m not seeing anything in TWLO stock that would make me reconsider my prior bearishness.
TWLO Stock Needs Another Tailwind
At first glance, my pessimism appears illogical. Since hitting bottom on May 11, Twilio stock has jumped nearly 30%, despite skidding more than 4% on July 27. That’s an incredible run in less than three months’ time, so again, I give credit to the brave speculators.
But as a legitimate investment, buyers simply don’t care for the choppiness. When you count the number of up-days versus the number of down-days in TWLO stock, it’s almost a coin toss. Granted, this year has improved the statistical needle, but not enough to make a significant difference.
Another point of concern is that some of the cloud company’s core strengths are no longer strengths. For instance, InvestorPlace’s Chris Fraley stated that “most companies would kill for its sales growth.” He is absolutely right. However, Twilio stock should benefit from robust revenue growth. TWLO is an upstart company and the law of small numbers means that double-digit growth should be the norm.
Click to Enlarge But when you consider quarterly sales, prospects don’t look too bright. Over the past five quarters, year-over-year revenue growth declined. In the first quarter of 2016, TWLO stock enjoyed 77.5% YoY sales growth. That metric slipped to 47.4% in the most recent quarter.
As the upstart, Twilio needs a powerful message that encourages investors to believe in the organization. For young companies, that almost always means “growth potential.”
But against the likes of Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM) and many, many others, TWLO stock needs a compelling story. A declining sales rate is exactly what the company does not need.
While we’re talking about the financials, Gurufocus ranks TWLO’s profitability and growth as one out of ten points. Unless they hand out zeroes, this is as bad as it gets.
Twilio Has Yet to Prove Itself
It’s true that Twilio stock has gained recent technical momentum. Unfortunately, shares haven’t demonstrated an ability to sustain momentum. We see pockets of upside movements, followed eventually with a selloff that takes TWLO to new lows.
Many of these bursts in market value are impressive. But I’m not too keen on the fact that on this present rally, TWLO stock failed to hit its May 1 closing price. Instead, shortly after breaking through $30, it went sideways before getting hit with volatility. Coincidentally, Twilio shares’ troubles occurred when it met its 200-day moving average.
Aside from strengths in the balance sheet, I’m not seeing anything remarkable from TWLO stock. As the new kid on the block, this is the easiest time to make an impression.
Giants like Amazon have to do things like buyout Whole Foods Market, Inc. (NASDAQ:WFM) to make waves. Until it can spark genuine interest, I will remain unconvinced.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.