- Twilio (TWLO) has fallen 62% over the last year as growth has fallen out of fashion.
- The company continues to grow at over 40% per year.
- If cash flow numbers look good next month, investors will buy TWLO stock with both hands.
Twilio (NASDAQ:TWLO) stock was a pandemic star but collapsed as the Covid-19 fears began to wane.
The irony is that this is scant reflection on the company. It succeeded in growing 61% during 2021. The problem is that losses nearly doubled. Cutting back on losses means cutting back on growth.
Twilio is thus caught between two markets, The market for its communication APIs continues to grow. The market for its stock continues to shrink.
Management looks set to seek a middle ground when first quarter earnings come out May 4. Losses are estimated at about $175 million, or 99 cents/share. Revenues are expected to be $835 million, slightly below December’s $842 million but still 42% ahead of last year.
Will that be good enough to lure investors?
| TWLO | Twilio | $145.17 |
Cash Flow Is King
Much depends on what happens with operating cash flow in the March quarterly report. That was positive in the first half of 2021, but negative in the back half, which is when the stock fell out of bed.
Twilio stock was due to open April 19 at $132.50/share. That’s a market capitalization of just over $24 billion on 2021 sales of $2.84 billion. A year ago, a growth stock selling at 8.5 times sales would be cheap. This isn’t last year. Since this time last year Twilio has lost over 64% of its value. At its peak in February 2021 this was a $440/share stock. It closed at over $400 as recently as last July.
If you were caught out by the collapse, you weren’t alone. Analysts seem to be just as surprised. Of the 26 listed by Tipranks, all but one is telling customers to buy. Even the lowest one-year price target is nearly double the current price, at $240/share.
If there is good news on the cash flow front, Twilio stock could rise quickly.
Good News Coming for TWLO Stock
There could be more good news coming for Twilio.
Big Tech’s privacy changes have put a premium on using the data companies are already collecting on customers. When Twilio bought a company called Segment at the pandemic’s height it bought a Customer Data Platform (CDP) it can now capitalize on.
It’s like this. The initial value of Twilio’s APIs was based on saving money, moving all contacts into a centralized Internet system. But what happened on all those chats, emails and support calls can tell companies a lot about what customers might want. Since they’re using only their own data on customers there should be no privacy problems. Thus, Segment put Twilio into a growing market.
The company’s Flex contact center service, which combines all customer chats into a single data store, means even more data for its CDP and more value from using Twilio.
The Scandal
There’s one cloud hanging over the company, but from the outside it looks very small.
It’s an insider trading scandal. Some of the company’s engineers saw good news coming a year ago and made $1 million trading on it with friends and family. The engineers face charges that could land one in prison for 45 years.
The size and nature of the scandal is a warning for all tech workers. Companies give employees limited windows in which to trade. Had the workers used those windows, they would have lost money. Don’t trade outside the window. Don’t use what you know and others don’t as the basis for your trades, either.
The Bottom Line on TWLO Stock
Inflation and recession fears are combining to make it hard on any analyst making a buy call.
Buy TWLO stock anyway.
That’s not just me saying it. Goldman Sachs (NYSE:GS) is saying it. Stifel is saying it. Our Bret Kenwell is saying it.
At these prices, who am I to argue, and what have you got to lose?
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
