Twilio IPO: A Way to Play Uber and WhatsApp?

Twilio - Twilio IPO: A Way to Play Uber and WhatsApp?

Back in late March, Uber CEO Travis Kalanick said that he was “going to make sure [an IPO] happens as late as possible.” It was certainly a big letdown for many investors.

Twilio IPO: A Way to Play Uber and WhatsApp?But there may be an indirect way to play a public offering. Just try the Twilio IPO.

The company plans to issue shares under the ticker of TWLO on the New York Stock Exchange and has retained Goldman Sachs Group Inc (GS) and JPMorgan Chase & Co. (JPM) as the bankers on the deal.

UPDATE: In an amended S-1 filing, Twilio has set the terms of its IPO. The company plans to issue 10 million shares at a range of $12 to $14. At the mid-point, the valuation of the offering would come to about $1.2 billion. 

Granted, Twilio is not a household name. But then again, one of its top customers is Uber.

What Is Twilio?

Let’s get a backgrounder on the Twilio IPO. Founded in 2008, the company operates a top cloud-based platform for communications, such as for implementing voice, video, messaging services and authentication capabilities into apps and web sites.

According to the Twilio IPO filing: “Our customers’ software applications use our platform to notify a diner when a table is ready, a traveler when a flight is delayed or a shopper when a package has shipped.”

Growth has been robust, as the company has benefited from Apple Inc.’s (AAPL) iPhone revolution. Annual revenues have soared from $49.9 million in 2013 to $166.9 million in 2015. As of now, there are more than 900,000 developer accounts and 28,000 active customer accounts (these are defined as generating at least $5 in revenue during the last month of the quarter).

Oh, and there is also lots of room for more growth. Keep in mind that — based on research from IDC — the addressable market opportunity for Twilio is projected to be about $45.6 billion by 2017.

All this sounds great, right? Definitely. But for those evaluating the Twilio IPO, there are still some big-time risk factors.

For example, the company continues to lose substantial amounts of money. Last year, the net loss came to a hefty $35.5 million. Let’s face it, Wall Street is now focused on companies that are profitable — or are on the path to profitability.

Something else: Twilio has an issue with customer concentration. To this end, Facebook Inc’s (FB) WhatsApp accounted for about 17% of last year’s revenue. So if Twilio loses the account, the impact would be severe. Even worse, the company does not even have a long-term contract with WhatsApp!

And finally, the IPO market has been fairly rough lately. Consider that there have been only three tech offerings this year, which include Secureworks Corp (SCWX), Acacia Communications, Inc. (ACIA) and Cotiviti Holdings Inc (COTV). While ACIA has logged a sizzling 30%-plus return, the other two are underwater.

Yet it seems that the IPO market could get back into gear soon, especially since the overall equities markets have been in the rally mode and there is probably pent-up demand for exciting offerings. Besides, TWLO shares will not be issued for a couple months anyway.

Although, for investors, it is probably still a good idea to be sensitive to the valuation because of the net losses and heavy customer concentration.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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