Twilio (NYSE:TWLO) stock was a pandemic success story.
Investors who bought shares of the cloud communications platform in March 2020 at $80 saw those go to $435 a piece within a year. If you held those shares, you’re still up about 80% from the pandemic low, at Twilio’s Jan. 19 closing price of $203.69. If you bought at the top, it’s a long way to breakeven.
The stock and the company tell different stories.
Twilio, a company whose voice APIs run telephony operations from within the internet, has continued to grow. Revenue for the first three quarters of 2021 was $2 billion, well above the $1.76 billion for all of 2020. The problem is that management keeps investing ahead of growth, meaning the company’s still losing money. Losses for those first three quarters of 2021 totaled $920 million.
With growth out of favor, what are Twilio’s prospects?
Analysts Keeping Faith in TWLO Stock
Twilio began changing course in the fourth quarter, which it’s due to report Feb. 9. Revenue is now expected to be $762 million, meaning 2021 revenue will be 56% ahead of 2020. A 94 cents per share loss is expected, but that’s the smallest since late 2020, and down 34% from the third quarter.
For all of 2022, analysts now expect a loss of just 3 cents per share, on revenue of $3.65 billion, up 31% from 2021. Optimists even expect a profit. Analysts tracked by TipRanks are keeping the faith, as none of the 21 analysts listed are saying “sell” and their average price target is $387.
Twilio stock may be broken but the company is not. Goldman Sachs (NYSE:GS) counseled clients to “buy” at the end of December.
Whether you call Twilio a UcaaS (Unified Communication as a Service) play, or a Mobile App Development (MAP) play, the future looks bright. However you define it, turning telephony into an internet marketing channel saves money and expands markets. With inflation becoming great again, that makes Twilio valuable.
Name Your Price
The question is what price can you pay for Twilio today and be assured of a profit tomorrow?
In 2021 Twilio used its stock to buy Zipwhip, a toll-free messaging company, and Segment, a customer data platform, for a total of $4 billion. The former brought customers who previously only trusted their business to phone carriers like AT&T (NYSE:T). The latter resulted in Twilio Engage, which uses Segment to integrate Twilio engagement on a single platform.
Our Chris Lau suggests you put Twilio on your buy list for the moment the current correction ends. That may not be today. The stock is selling for 10 times next year’s revenue. While a 2022 profit would be nice, that profit will likely be miniscule. But with inflation continuing, companies are desperate to cut costs. Twilio APIs turn expensive telephone operations into cheap cloud-based operations that are easily measured. That cuts costs and helps increase sales. It’s the kind of productivity that will beat the current round of inflation.
The Bottom Line
I like Twilio. I like the products. I like the story. I even like management’s risk-taking, $750 million to take Carlyle Group’s (NASDAQ:CG) Syniverse public through a SPAC whose launch is imminent. Twilio is currently slightly underwater on that investment. M3-Brigade Acquisition II (NYSE:MBAC) is trading under $10, below Twilio’s purchase price of $11 a share. But the deal will bring new business to the Twilio platform.
Futures this morning are showing a greenish hue after trading lower for two days. While Twilio has been one of the companies that can make you feel good about holding cash in good times, watch the market closely. Once it starts to turn, buy some Twilio.
On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.
