Many people ask a fair question: what does Twilio Inc. (NYSE:TWLO) do? The Internet and telephone networks are very different. Twilio builds a bridge between the operators and the Internet. Developers write software, and Twilio enables that software to interoperate with the highly specialized carrier ecosystem.
Have you ever sent a picture via SMS or another platform that spans the internet and telephony? By doing all the heavy lifting in between, Twilio makes things like this possible. Twilio also does this very effectively at mass scale for enterprises.
Businesses communicate with customers through various apps and other channels, and Twilio enables high-quality interactive communication. Moreover, Twilio is a leader in this field and there is a massive market globally. Twilio enables businesses to reach their customers effectively and efficiently. Furthermore, Twilio should continue to optimize its services by implementing AI.
Some of Twilio’s most significant enterprise customers include Uber, Lyft, Shopify, Airbnb, Dell and many others (over 300,000 brands that build with Twilio). While Twilio’s growth has slowed due to the temporary economic slowdown, its revenue growth should accelerate again. A more accessible monetary environment should allow companies to expand their budgets again, increasing revenue for Twilio.
Despite the effects of an economic slowdown, Twilio’s solid fundamentals remain intact. Meanwhile, Twilio’s market cap has melted due to the temporary economic downdraft, creating one of the most significant buying opportunities I’ve seen in a long time.
Twilio’s market cap has melted
Twilio’s value was more than 70 billion dollarsaround the highs of 2020 and 2021. However, the economic slowdown caused excessive selling, bringing Twilio’s market cap down to just $10 billion, making the stock unusually cheap.
Twilio for double sale
Twilio should achieve 5 billion dollars on sale in 2024 or 2025. Yet its market cap has shrunk to just $10 billion. When was the last time you saw a high quality software company sell for double the revenue? For example, Microsoft trades at ten times forward revenue estimates. Palantir trades at 15 times forward sales. Axon trades at nine times sales, and the list goes on. The market is mispricing Twilio and the stock price should go much higher in the coming years.
Twilio earnings are likely to rise
We should see robust EPS growth from Twilio. Next year, we could see EPS around $2, and we could see it around $3 in 2025. This dynamic illustrates that Twilio is trading at just 18 times 2025 EPS estimates, which is remarkably cheap for a company in Twilio’s position that is likely to continue growing revenue and EPS for many years as we move forward.
Twilio continues to crush estimates
Twilio delivered $1.81 in EPS in its TTM. Consensus estimates, however, were for just 79 cents. We’re seeing a remarkable 130% hit rate, and Twilio should continue to outperform consensus numbers as we go forward. Twilio’s forward 12-month estimates are $2.09, but the company can do much better.
Twilio just reported 58 cents in EPS versus its estimate of 36 cents, once again showing a significant beat rate of 61%. Twilio’s revenue took a hit $40 million, increasing by 4.8% year/year. Despite the significant slowdown, Twilio’s revenue continues to grow year-over-year. Twilio’s organic revenue increased 8% year-over-year.
Twilio’s data and application revenue increased 9% year-over-year. Twilio highlighted its 306,000 active customer accounts, up 9% year over year. Twilio also provided upbeat guidance, suggesting growth could continue to outperform.
Twilio stock may soon rise
Twilio was in a bear market for a long time, and the stock fell a staggering 90% from its peak. But fundamentally there is nothing wrong with its business. On the contrary, everything looks good and the stock has been victimized for no apparent reason. The market is slowly recognizing the value here, and the effect can quickly accelerate.
We have seen sideways price movements in this long-term consolidation phase. Now we have the 50-day MA crossing and going above the 200-day MA. This dynamic implies that Twilio’s stock price has been under pressure for too long, momentum is recovering, and it could soon go much higher. Due to its highly compressed valuation, when Twilio breaks out of the $70-75 range, it could quickly move up to $100 and then higher.
Where Twilio’s warehouse might be in the future:
|Income Bs||4.8 USD||5.7 USD||6.5 USD||7.5 USD||8.5 USD||9.5 USD||10.5 USD|
|Share price||$83||$102||$130||$157||$177||200 USD||$225|
Source: The Financial Prophet.
I used modest revenue growth and EPS growth projections. I also used a relatively low P/E ratio of under 30. Twilio could generate more robust revenue growth, leading to higher than expected profitability. Also, Twilio’s EPS growth could be above 20% for several years. We can also see Twilio’s forward P/E ratio shoot above 30 in the coming years. A higher multiple could result in a significantly higher share price than my model suggests.
Risks to Twilio
Twilio faces risks due to a slow macro environment, sluggish growth in its segment, high interest rates, ongoing completion and other factors. Due to the headwinds, Twilio’s growth may be slower than expected. In addition, Twilio’s profitability growth may be worse than expected due to a sluggish economy, margin compression and other factors. Twilio’s multiple could also remain depressed around the 20 range or lower in a bearish case outcome. Investors should examine these and other risks before investing in Twilio.