- Twilio (TWLO) stock fell hard as the pandemic eased and growth went out of fashion.
- The company’s ability to turn communications into measurable data is still valuable.
- Twilio will prove its value in the current inflationary environment.
Twilio (NYSE:TWLO) stock investors know now that life comes at you fast.
All the things that made Twilio a pandemic star are now coming back as liabilities. The big growth of 2021 is no longer in fashion. Neither are operating losses. Helping people work from home looks bad when what people most want is to get out of the house.
As a result, Twilio stock is down 62% from the start of 2022. It was recently trading for about $102 a share. This makes reporters like me who predicted a turnaround in January, and again in April, appear foolish.
Take what I say next with a grain of salt because I’ve been wrong before. But I suspect what’s happening has more to do with the stock market than with Twilio. I admit it was overvalued. It may now be undervalued.
| Ticker | Company | Price |
| TWLO | Twilio | $102.65 |
TWLO Stock: Growth With Losses
Twilio makes application program interfaces (APIs) that let companies move all their communications onto the internet, then measure and manage the results as they would any other internet activity.
This has produced stellar growth. For the quarter ending in March, Twilio reported revenue of $875 million, up 48% from a year earlier. But the loss expanded slightly year over year, to $221 million from $205 million. Stock sales meant a slightly narrower per share loss, $1.23 against $1.24.
Had Twilio’s research and marketing costs not jumped 37%, most of that loss could have been eliminated. Twilio is now guiding to second quarter revenue of $912 million to $922 million, and a non-GAAP loss of just $35 million to $40 million. Slower growth upset some traders, while smaller losses pleased others. Twilio is down 11% since earnings, while the Nasdaq is down 7%.
Analysts are also listening to the market’s mood, taking down their price targets. Wells Fargo (NYSE:WFC) now sees TWLO stock worth $225/share in a year. Oppenheimer has it at $320, Cowen at $300.
This would sound better if Twilio stock weren’t at nearly $400/share last July.
Changing the Narrative
Changing the narrative requires maintaining growth while keeping down expenses. This happens to be what Twilio is selling its customers. But it’s easier to say than do. The number of active Twilio accounts grew just 14% in the last quarter. Organic growth was just 42%. The rest came from acquisitions Zipwhip, which adds text messaging to Twilio’s API, and Segment, which manages data from the API.
Over time, creating more value from Twilio’s data stream should mean cost-free growth and (dare I say it) a profit. That’s why, even while lowering its price target, Goldman Sachs (NYSE:GS) still wants investors to buy Twilio stock. At Tipranks, Twilio is still a strong buy, with 20 of 22 analysts telling investors to buy the dip.
ARK Invest’s Cathie Woods is still buying. In-app communications, letting restaurants or delivery services tell you when your food will arrive, is now a thing thanks to Twilio.
The Bottom Line on TWLO Stock
Inflation first demands cost cuts. Then it demands efficiency.
Technology that improves efficiency, like that of Twilio, will prove its worth in this inflationary environment. Having proven itself to investors last year, it is now proving itself to customers.
With its market cap of $18.8 billion, TWLO stock is now selling for just 6 times its expected 2022 sales of $3.1 billion. Rising costs for people and gas should only encourage companies to seek solutions from technology. Twilio data will now join its APIs in providing those solutions.
I can’t tell you when the turn in Twilio is going to come. I just know it will. If it can just narrow its second-quarter loss, as management anticipates, the turn could come soon.
On the date of publication, Dana Blankenhorn held no positions in stories mentioned in this article. 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.
