The past year has been pretty awful for tech stocks, as the market slammed big names like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL,NASDAQ: GOOG). However, even though the tech sector has been down in the dumps, a few tech stocks have bucked the trend by producing triple-digit returns.
Cloud communications firm Twilio (NYSE:TWLO) is one such company. Given Twilio’s growth potential, Twilio stock provides believers with an interesting opportunity. That being said, Twilio stock has gotten expensive over the past year, so value investors have reason to be wary about TWLO.
Here’s a look at the bull and bear arguments on TWLO stock.
Twilio Stock Pro: An Unmatched Competitor
Perhaps the most compelling reason to buy Twilio stock is the company’s business. TWLO’s cloud platform facilitates in-app communications for mobile apps. Any time you send text messages or make calls without leaving an app, Twilio probably facilitated the communication. Allowing users to communicate without leaving apps is huge for app developers, since creating those features takes time and often results in a poor experience for users. Twilio takes that work off developers’ plates and is one of the first, and only, companies offering such a service.
TWLO’s first-mover advantage has been a significant positive factor for it. Huge names like Facebook (NASDAQ:FB) depend on Twilio’s services, which in turn gives TWLO some serious credibility as it seeks to attract new customers.
Twilio Stock Pro: Happy Customers
Another part of Twilio’s business that should give investors some confidence is the fact that the firm’s retention rate is impressive. More than 95% of customers are sticking with Twilio. That not only implies that TWLO is great at what it’s doing, but that switching costs are high. The latter factor should continue to benefit Twilio stock far into the future. The last thing that developers want is a poor user experience, so if they are using a communication platform that’s working, they probably won’t switch in the future.
Twilio Stock Pro: Huge Market
Another big reason to love TWLO stock is the fact that the company’s addressable market is huge and likely to grow larger in coming years. The beauty of Twilio’s services is that they enhance almost any app. WhatsApp uses Twilio to verify users’ phone numbers without forcing them to leave the app. Uber utilizes it to allow users to communicate with drivers. Twilio’s possibilities are endless, and therefore the potential of TWLO stock is huge. There are thousands of ways that companies can productively utilize in-app communication.
Usage of mobile devices probably won’t slow anytime soon, and as consumers become more and more likely to buy things using their phones, it’s critical to ensure that their experience with apps is positive.
Twilio Stock Con: Dependent on Big Accounts
Twilio is very reliant on its largest accounts. The company had close to 50,000 active accounts at the end of last year, but nearly 20% of the firm’s overall revenue came from just ten accounts. WhatsApp and Uber accounted for a combined 14% of TWLO’s overall revenue in 2017.
That’s risky because if one of those two gives up Twilio or even scales down its usage of the service, TWLO stock will be significantly affected.
Twilio Stock Con: Competition
Twilio will need to stay in front of the competition or risk losing its larger accounts. At the moment, TWLO is the undisputed leader of the Communication Platforms-as-a-Service (CPaaS) market, but that doesn’t mean it will retain that position forever. The sector has very few barriers to entry and with so much potential growth on the table, you can bet that big names like Cisco (NASDAQ:CSCO) will be looking to develop their own CPaaS offerings.
Twilio Stock Con: Price Tag
However, the biggest reason many people are wary of investing in Twilio stock right now is the shares’ nearly $95 price tag. Over the course of just a few days, TWLO stock shed more than $5 per share after Twilio COO George Hu unloaded 10,000 shares of TWLO stock and CFO Lee Kirkpatrick sold 14,000 TWLO shares.
TWLO stock is expensive. As InvestorPlace’s Luke Lango pointed out back in November, at $90 per share, Twilio stock is fully valued, and I’m inclined to agree that TWLO’s future success is priced in.
The Bottom Line on Twilio Stock
TWLO stock is winning while the rest of the tech market is languishing and that’s not something to ignore. TWLO should definitely be on your watch list, but I think we’re all a bit late on the Twilio stock train as the company’s share price appears to already take into account all that the firm has going for it. But if TWLO stock falls, it will start to look more appealing.
As of this writing Laura Hoy was long FB.