It’s hard to believe but Twilio Inc (NASDAQ:TWLO) was once a Wall Street darling. On June 23, 2016, TWLO stock closed at $28.79. Within a few months, shares were just three cents shy of closing at $69. But that was all she wrote. Since late September, the cloud communications company suffered a catastrophic slide in the markets. Worse yet, I don’t think Twilio can ever recover.
As many of my readers know, I haven’t been too hot on TWLO stock, nor on the TWLO news stream that the bulls insist I carefully listen to. Instead, I have largely viewed the cup as half-empty. This is true even though Twilio shares have shown signs of life. Unfortunately, they’re just not sustained rallies, but rather, speculative bursts. In order for Twilio to be convincing, the company must prove it’s more than just a gambling vehicle.
Admittedly, my bearishness hasn’t resulted in great trading opportunities. Twilio proponents may take this as encouragement that I’m wrong on the communications firm. The bigger point, though, is that taking the opposite road hasn’t yielded consistent gains. Year-to-date, TWLO stock is up just under 5%. Sure, it’s a profit, but you can do far better investing in something vanilla like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
And that’s really the core argument for why folks should avoid Twilio, despite any rumors from the TWLO news cycle. As I argued late last year, TWLO stock hung at a technical inflection point between the bulls and the bears. The problem is that shares never worked itself out of that inflection.
Wall Street is still pondering whether Twilio is a buy or sell. In my opinion, the longer the holdout, the worse the outcome will be.
TWLO Stock Must Endure Severe Competitive Headwinds
First, allow me to address the low-hanging fruit that better opportunities exist. Again, going with a broad index fund would net me better gains. It’s just not a good look for a supposedly rising tech company. More critically, investors will get bored merely beating inflation and will surely seek greener pastures.
Second, bullish TWLO news can’t put a positive spin on the competition. While the company’s cloud communications program is impressive, and boasts renowned clients like Intuit Inc. (NASDAQ:INTU) and The Coca-Cola Co (NYSE:KO), nothing Twilio does is unique.
In his own witty and sarcastically charming way, InvestorPlace feature writer James Brumley beautifully summed up Twilio’s future challenges. Discussing automation trends among cloud solutions applications, Brumley wrote:
“It’s the shape of things to come for an increasingly automated world. Problem is, with no real barriers to entry, anyone can effectively get into the business.
And they are. As yours truly noted just a few months ago, Amazon.com, Inc. (NASDAQ:AMZN) is developing a platform that looks an awful lot like Twilio’s, as are Zendesk Inc (NYSE:ZEN) and RingCentral Inc (NYSE:RNG). The irony? The more Twilio validates the technology, the more competition it will draw out.
In other words, TWLO stock might have a Snap Inc (NYSE:SNAP) dilemma. No matter what popular ideas Snap forwards, Facebook Inc (NASDAQ:FB) will eventually snatch it up. In fact, Snap might be doing Facebook’s job for them. Rather than spending research dollars figuring out what works and what doesn’t, Facebook can use Snap as a guinea pig. Of course, Facebook is so big that it can do whatever it wants.
While Twilio deserves credit for its technical innovations, it can’t hold a candle to Amazon or any of the majors. That’s certainly not what investors want to hear.
No TWLO News Is Not Much Better Than Bad TWLO News
The upcoming TWLO earnings report might shake things up in the markets, but the impact will likely be short-lived. In recent earnings beats, we’ve seen shares swing both higher and lower. Ultimately, TWLO stock ends up trading range bound around the $30 level.
We should probably expect more of the same moving forward. Recent TWLO news doesn’t really provide any outstanding reasons why we should risk our capital on the company. My fellow InvestorPlace contributors are largely bearish on TWLO stock. If they’re not, they’re very cautiously optimistic. Few recommend going long on the shares outright.
You should be worried about that. TWLO news is neither hot nor cold, which means shares aren’t going to fall out of the sky. Instead, the company could become a victim of neglect. When boring investments like the SPY massively outperform your speculative picks, you know you have a problem.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
