Twilio Stock Forecast

Sep 16, 2019

Originally posted on https://financhill.com/blog/investing/twilio-stock-forecast

Twilio Stock Forecast: Advances in technology have changed consumer expectations, and traditional customer service methods simply aren’t enough anymore. Businesses that still rely on call centers are rapidly becoming obsolete.

Today, consumers want instant electronic updates on the status of their orders, and they want the updates to come automatically. They have all but lost interest in logging in or making a call to determine when goods and services will arrive or concerns will be resolved.

Smart businesses have adopted automated text messages, calls, and emails to stay in constant contact with clients. To the end user, all of this communication appears effortless. However, in truth, highly specialized software is required to deliver a seamless customer experience.

Only a handful of companies have successfully developed the technology necessary for effective automated communication. Those that have perfected their platforms are perfectly poised for growth. Twilio is one such company, and it is leading the industry in advanced automated communications.

For investors, the question is this: will Twilio keep its edge and continue to outperform the competition?

How Twilio Makes Money

Twilio [NYSE: TWLO] isn’t a household name, but perhaps it should be. The company is responsible for millions of customer interactions every day.

It powers the customized communications between major brands and their customers. For example, Twilio technology is a critical component of the Lyft, Netflix, and Airbnb service models, making it possible for these businesses to connect with their users real-time.

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Developers employed by more than 40,000 businesses around the world incorporate Twilio’s APIs (application programming interface) into their communications.

The APIs are fully customizable, so they can be scaled to organizations of any size, and communications can include anything from text messaging to video conferencing. For example, when a rider orders a Lyft, the notifications are sent through Twilio-based systems. The same systems make it possible for riders and drivers to call or text each other as necessary.

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Twilio [NYSE: TWLO] has been particularly successful, because it has something its competitors don’t: the Twilio Super Network. This network facilitates all of the communications between businesses and their clients, and as communications flow through, the system learns. Each bit of data that passes through the network helps it become more accurate, more intelligent, and more efficient.

The network gives Twilio a key competitive edge, because it would be nearly impossible to replicate. Should another company launch a similar service, a new network would be years behind Twilio’s.

Should You Buy Twilio Stock?

In just five years, Twilio has increased its client list substantially. While the company had just 16,631 customers in 2014, it now boasts more than 64,000.

Base revenue, primarily comprised of customers who sign long-term contracts, has increased from less than $100 million in 2014 to almost $600 million in 2018.

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Twilio’s long-term prospects are made stronger by the complexity of switching from the Twilio platform to a competitor.

Assuming a comparable service became available, replacing Twilio technology with an alternative would be expensive and disruptive to business operations. In the past five years, Twilio has retained nearly all of its clients, and most have added new features year-over-year. This has resulted in greater per-customer revenues.

Some of the most respected investors in the industry are buying Twilio for their personal portfolios, thanks to the company’s past success and future prospects. Twilio offers innovative solutions to critical business problems, and its technology is continuously refined and adjusted to ensure optimized performance.

By all indications, Twilio [NYSE: TWLO] has the skill and flexibility to adapt to changing consumer expectations, as evidenced by its acquisition of companies offering additional communication channels. This bodes well for investors, as it demonstrates Twilio is likely to keep up with advancements in technology as they develop.

What Concerns Do Analysts Have About Twilio?

There was a time when investors and analysts had significant concerns about Twilio.

The most memorable example was just after the company’s 2016 IPO. At that time, Uber was Twilio’s largest and most profitable customer, accounting for more than 10 percent of 2016 revenues.

Shareholders were concerned that Uber had too much influence on Twilio’s success. If it decided to seek an alternative provider, Twilio [NYSE: TWLO] would struggle to meet revenue goals.

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As it happened, Uber did leave Twilio in 2017, but this didn’t turn out to be the calamity shareholders expected. Twilio was able to add many new clients within a short period, easily replacing the lost revenue.

Better still, the issue has not come up again. Since the loss of Uber, a diverse client list has ensured no individual customer is responsible for such a substantial portion of revenues.

Another frequently-cited concern about Twilio is related to the overall reputation of new and growing SaaS companies in the marketplace. Specifically, they are almost never profitable.

However, Twilio is already showing its profit potential. By the end of 2018, it had a net cash position of $314 million, and it brought in free cash flow of $3.3 million.

Though perhaps not a large figure compared to more established companies, it is quite impressive when compared to other new and growing SaaS organizations.