Cloud communications company Twilio (NYSE:TWLO) has had a two-part year. In the first half of 2019, Twilio stock was on fire, continuing a period of strong growth that began at the start of 2018.
It hit a record $149.95 in July, rising an impressive 68% in 2019 up to that point. Since then, it’s had a reversal of fortune. The second half of 2019 has been downhill for Twilio stock. It closed down 1.3% on Tuesday at $97.59. That was just the latest decline in an extended slump during which TWLO stock has tumbled 35% since the end of July.
The question facing investors is whether the slump is going to continue and if Twilio stock is going to end up giving back all of its 2019 gains.
What Does TWLO Do?
Twilio is one of those tech companies that functions primarily behind the scenes. Other tech companies all know TWLO and many use Twilio’s tech, but the name is not widely known to consumers. The company describes its core functionality this way:
“… Twilio works in the background to bridge the gap between web-based applications and telephones …”
With Twilio technology, companies such as Uber (NYSE:UBER) are able to directly communicate with their customers in real time, with the necessary privacy layers in place, and without having to create their own communications functionality from scratch.
Speaking to SFGate in 2014, NYU business professor Arun Sundararajan said:
“Twilio is one of the hidden giants of the sharing economy. They are a critical piece of the infrastructure.”
Sundararajan pointed out that peer-to-peer marketplaces require trust between the participating parties, but at the same time, the participants often need to shield information about themselves. Twilio provides the communication layer that makes that possible.
A Potentially Risky Business
At least part of the reason the market got cold feet about Twilio is the long list of its big customers who have been under fire themselves in 2109. Uber, Lyft (NASDAQ:LYFT), Airbnb, Twitter (NYSE:TWTR) and others have taken heat this year for issues ranging from user data privacy to cities legislating against their operations. When a firm’s high-profile customers are facing scrutiny and backlashes against their businesses, that seldom works to its advantage.
And in an ironic twist, Twilio itself relies on another vendor to host its services. The company is using Amazon’s (NASDAQ:AMZN) AWS as its global cloud provider. If AWS suffers an outage — which does happen on occasion — it doesn’t just impact Twilio’s corporate operations; all of Twilio’s clients may not be able to communicate with their clients. And any price increases by Amazon puts further pressure on Twilio’s bottom line.
These two elements of Twilio’s business carry some risk. Recognition of that risk has undoubtedly had an impact on Twilio stock in the second half of 2019.
Is Twilio Stock a Buy?
Even after a slump that’s lasted nearly five months, TWLO is still up 9% in 2019. And the company continues to have the faith of stock analysts. Among the 24 professionals polled by CNN Business, nearly all of them rate TWLO stock a “buy,” with a median 12-month price target of $139.00.
Analysts seem to believe that Twilio may not have the legs to reach July’s all-time highs, at least not in 2020. However, with even the lowest price target of $115.80 still about 16% above Twilio stock’s current price of $99.25, a long-term investment in TWLO seems like a safe bet at this point.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.