I’ve had my doubts about cloud-communications firm Twilio (NYSE:TWLO) and quite frankly, I’ve been wrong. You only need to look at the TWLO stock price to recognize this. Year-to-date, shares are up nearly 55%. That follows an incredible 270% run in 2018 that made almost everything else look pedestrian.
Thanks to its $2 billion acquisition of email-service provider SendGrid, Twilio not only doubled its consumer base, it’s also a significant player in the anti-phishing market. This buyout, though costly, makes Twilio stock an exceptionally relevant name. We all hate phishing scams because they wreak so much damage in a short time frame.
It’s not just at the personal level, either. Phishing attacks significantly hurt businesses. According to one estimate, the average cost of this digital violation is $1.6 million for mid-sized firms. Even more problematic, smaller business that fall victim may not have the resources required to recover. If Twilio can provide a cost-effective solution, their efforts can potentially spike the TWLO stock price.
Early indicators appear promising. The company is incorporating artificial intelligence to weed out phishing attacks before they reach your inbox. To accomplish this on a wider scale, software engineers are scouring through multiple data points; 50 billion emails each month, to be exact.
With such a large base, the platform’s AI can learn to recognize phishing emails’ recurring patterns. When it finds suspect patterns, it can “zap” those problem emails. Because of the aforementioned data base, Twilio’s AI is incredibly accurate. According to management, the platform lets in legitimate emails 99.7% of the time, or nearly perfect.
The business implications are obvious, but will it decisively help Twilio stock? I’m not so sure.
Venture Will Have Limited Impact on TWLO Stock
You might like Twilio for many other reasons beside its anti-phishing efforts. Good. One thing we might agree on is that this venture brings only a limited benefit to the TWLO stock price. Let me explain why.
In life and in business, the risk-reward ratio typically has a direct correlation: risk big, get big. This concept cuts across all industries. It’s the reason why penny stocks are so cheap.
But anti-phishing efforts represent that rare segment where the risk-reward ratio is inversely correlated. In other words, risk big, get small. This dynamic alone is enough for me to worry about too much exposure to Twilio stock.
What’s the common stereotype of the modern digital con artist? A Russian teenager who uses his uncanny computer skills to wreak havoc half-a-world away. I think there’s a lot of truth behind this characterization. The main point here is not about Russians, but about asymmetry: an individual scammer can bring down institutions and even nations.
To combat such a pernicious threat, Twilio needs to do much more research than they’re doing now. But hold the phone … doesn’t the company process 50 billion emails monthly?
Unfortunately for TWLO stock, it’s simply not enough. In 2017, global internet users sent out 269 billion emails daily. So, in a month, that gives us a little over 8 trillion emails. Back in Twilio’s 50 billion processing rate, and you quickly realize that they’re only analyzing 3% of all emails.
Because threats come from anywhere nowadays, a 3% sample size won’t cut it, even with an AI advantage. Moreover, scammers are constantly upgrading their craft. To address future threats, Twilio must invest more into their platform lest they become obsolete. Since TWLO stock isn’t exactly a market-cap giant, I’m not sure they have the resources to prosecute this sector.
Twilio Stock Barking Up the Wrong Tree
Another problem with this asymmetry is that it exclusively benefits the con artist. For instance, many, if not most, phishers hail from countries with which we have poor relations. The trade war ratcheting up is a recent example of how little support we may receive from international law-enforcement agencies.
These scammers aren’t stupid. They realize that we Americans have little recourse when it comes to prosecuting phishing attacks, so they continue. That’s one uphill battle awaiting TWLO stock.
The other whammy is that it only takes one cyberattack or breach to render unspeakable damage. Remember the Equifax (NYSE:EFX) disaster? Most working-age Americans had their Social Security numbers compromised due to a silly oversight.
Realistically, the rewards just aren’t there for Twilio stock to advantage. The underlying company must incur large and growing expenses for a relatively small payoff. And if they fail just once, their reputation goes up in smoke. That’s not a risk I want to take, especially with shares having gained so much.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.