Twilio Inc. (NYSE: TWLO) returns have been edging higher over the past year. The stock has more than tripled in value, having rallied by nearly 1000% over the past three years. In 2021, the stock is up by more than 20%, outperforming the overall industry.
The impressive performance comes at the backdrop of the company posting impressive numbers on revenues that have helped shrug profitability concerns. Over the past three years, Twilio has seen its revenues increase by an average of 48%, strengthening investor confidence in the company’s growth metrics.
In light of the blockbuster numbers on revenue growth, the stock has posted an average of 100% gains every year and showing no signs of slowing down. Even though the cloud communications company is flirting with record highs in the market, there is still some room to move supported by solid underlying fundamentals.
Impressive quarterly results all but affirm the robust growth phase that the cloud communications company finds it in. Better than expected fourth-quarter results, including a surprise adjusted profit, all but underscore growth in the core business.
The company posted earnings of 4 cents a share against a net loss of 8 cents a share expected by analysts. The quarter’s revenue was up 65% to $548.1 million, easily topping consensus estimates of $454.1 million.
During the quarter, the cloud communications company added 13,000 active customers’ accounts, bringing 221,000 active accounts that the company can depend on to strengthen its revenue base. Growth inactive accounts are one reason why revenue growth is not expected to slow down anytime soon.
Twilio has already indicated it expects its first-quarter sales to increase to between $526 million and $536 million, way above consensus estimates of $487.2 million. The revenue guidance translates to a 45.5% year-over-year growth.
The impressive fourth-quarter numbers stem from Twilio making a name for developing tools that developers can use to add text messaging, voices, and video calls into applications. Likewise, the company offers cloud-based contact center software that companies can use to interact with customers.
Besides, the cloud communications company has benefited a great deal from health care companies being forced to accelerate the adoption of telemedicine in the aftermath of the COVID-19 pandemic. Online shopping edging higher amid the pandemic also fuelled demand for its communication applications, all but fuelling revenue growth.
Twilio growth is not expected to slow even with the easing of the COVID-19 pandemic. Its cloud-based platforms have proven to be a must-have for companies looking to maintain close ties with customers. Also, the solutions have made it easy for developers to easily integrate voice calls, text messages, and other content into apps, something not expected to change with or without coronavirus.
Solid customer base
Chief Executive Officer Jeff Lawson has already confirmed that companies don’t have any plan of ending their cloud communication investments anytime soon. The fact that the company’s solutions offer flexible contact with customers and within organizations should allow it to hold on to customers for many years to come.
Companies are increasingly outsourcing communications features to the cloud communication company as they seek to develop other core features. Among some of the biggest customers leveraging Twilio’s cloud communication solutions include Lyft and Airbnb.
The rate at which the company is adding new customers should also excite investors looking at the stock as a long-term play. Active accounts rising to 221,000 from 179,000 a year ago are important milestones that affirm the strengthening revenue base. Spending from customers increased by 39% from a year ago, signaling the company’s solutions are resonating well with the mass market.
Amid the solid fundamentals driving Twilio to record highs, the stock is not by any means cheap. With a market cap of about $70 billion, the company generates less than $2 billion in trailing 12- month revenue. It is currently trading at 41 times its trailing 12-month sales. However, a hefty price-sales premium is not new, especially for a company operating in a high-growth area such as cloud communication.
The company sits on a massive $3.04 billion in cash and equivalents ideal for accelerating growth by pursuing areas with tremendous opportunities for growth.
Twilio has also moved to strengthen its array of cloud communication solutions via a $750 million investment in Syniverse. With the investment, the company gains access to valuable messaging, roaming, and other mobile operators’ communication services. The investment should allow Twilio to expand its footprint into new areas, mostly focusing on enterprises that don’t have access to Wi-Fi.
Similarly, the investment comes barely a year after the company acquired Segment, which allows it to offer businesses insights about their customers’ sifting through email communications and mobile apps. The segment has increasingly strengthened the Twilio customer engagement platform.
The major tailwinds standing in the way of Twilio enjoying tremendous revenue growth is the ever-rising competition threat from companies offering similar services. Vonage, Nexon, and Microsoft are some of the companies that could thwart the company’s push to accelerate revenue growth.
Besides, new application-to-person fees from carriers could also pose significant challenges going forward. Whenever an app accesses a carrier’s SMS network, the fees charged already reduced the company’s non-GAAP gross margin from 58% to 56% in 2020. There are growing concerns that the contraction could continue.
Twilio is well-positioned to exceed expectations going forward, given the strong demand for its cloud communication solutions. The company is witnessing strong demand for its programmable and messaging products, explaining the recent quarter’s revenue growth.
Topline performance should continue to enhance the company’s prospects to turn in a profit, which will go a long way in strengthening its sentiments in the market. Increased spending and investments in enhancing product portfolio and expansion into new markets are the only tailwinds that could dampen the company’s prospects in becoming profitable.