Twilio (NYSE:TWLO) has been consistently making new 52-week highs throughout the year, earning its spot as a leading cloud communications platform, if not the leader. Such strength in the cloud computing sector has given TWLO resilience amidst recent trade-war-driven market swings. Therefore Twilio is a stock you want to have a position in.
With Twilio stock up 74% for the year, it may be tempting to think that now is a time to take profits, but with stocks that have significant momentum like Beyond Meat (NASDAQ:BYND), it behooves one to be patient.
Let your winners run.
Even with Twilio’s performance handily beating that of the Nasdaq, up 23% over the same period, there’s room for more.
Twilio Stock’s Secondary Offering Is a Net Benefit
Some market pundits have been critical of the secondary offering the company launched late last month. Yes, secondary offerings are dilutive to existing shareholders. However, the capital raise at that particular juncture was a shrewd move by management.
Raising equity at top tick is difficult, but given strength in fundamentals and the stock itself, the estimated $750 million that the capital raise brought in will provide a war chest for the Twilio stock to sustain future growth. This is all to say that raising capital in a position of strength is a great move for shareholders.
Even though shares fell on the day of the announcement, Twilio stock has rallied hard ever since.
If Twilio were raising out of desperation or if there were exhaustion signals in the price action, I would be less bullish. The fact is that TWLO is dominating the communications software industry and will continue to extend that dominance with the cash raised.
TWLO Stock’s Huge First Quarter
It’s worth remembering how good of a first quarter TWLO had. Total revenue increased 81% year-over-year and 14% quarter-over-quarter. The quarterly outlook for the next quarter of $262 million to $265 million seems conservative, meaning it should be an easy beat.
Another important metric, Active Customer Accounts, showed an almost 3x increase year-over-year from 53,985 to 154,797, which is proof of just how compelling their in-app communications technology is. In tech, everyone touts ad nauseum that their product is “disruptive” and “game-changing.”
The numbers show that Twilio is doing just that. Big Fortune 500 companies count themselves as customers, and I expect that traction to grow pretty organically throughout the remainder of the fiscal year, driving major growth.
The Bottom Line on Twilio Stock
With a newly raised pile of cash, Twilio has options. It can funnel resources to grow both organically and inorganically. The acquisition of SendGrid demonstrates that these tuck-in acquisitions can really juice growth. Growth, of course, always has a price. Still, there are synergies to be had as Twilio consolidates its lead in customer engagement platforms.
After the big run-up in the TWLO stock price, bullish targets set by sell-side firms like Needham ($140) have been taken out. But investors should stay patient. The inclination to take some money off the table is prudent, but sticking with Twilio stock at least through next quarter will likely prove rewarding.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.