I just saw that Twilio is announcing earnings on July 31. I’ve already starting pecking away at my monthly review, so I thought I’d post TWLO early. It’s still a 12.0% position for me and I have no immediate plans to do anything before earnings. However, I’d love to get some feedback on my ramblings below…
TWLO – I continue to mentally grind a bit on TWLO. Last month I wrote:
”It’s probably fair to point out I’m having a minor mid-life crisis with TWLO at present. There’s really no arguing what they’ve done to this point. However, I see a little muddiness when trying to guesstimate their future. Their raw numbers the rest of this year will undoubtedly impress, but how much of that is due to the SEND acquisition? Comps will be much tougher starting in 1Q20, especially after adding a company that comes in with slower growth right off the bat. In addition, gross margins which already rank near the very bottom for my companies will be pressured even more by the recent Verizon price increase. Diabilito and Bear’s recent thread on expenses provides some food for thought as well (https://discussion.fool.com/twilio-sm-spending-analysis-34237109…). Finally, Twilio ranks dead last in YTD price appreciation in the non-IPO division of my current portfolio at +52.7%. I realize in a vacuum that’s a borderline ridiculous statement, but it’s a valid observation in terms of relative performance against my other holdings. Is the market trying to tell me something that I’m simply not hearing? I can’t see myself abandoning TWLO, but I am at least starting to mull over whether it deserves a lower allocation until things become clearer. “
Maybe I’m just a tough crowd, but Twilio’s July is once again lagging the majority of my holdings and has me reexamining its allocation size. In fact, since the February 1 SendGrid close Twilio’s 26.3% gain ranks dead last by a WIDE margin among the eight stocks I’ve held that entire span. Shockingly, OKTA being second worst at 61.4%(!!!) just goes to show what an incredible year this has been. Quick straw poll…who would have guessed this price appreciation since 2/1?
Apple 23.8% Twilio 26.3% Under Armour 28.6% Microsoft 34.4%
I surely wouldn’t have predicted that. Under Armour? Really?!?
It’s not that I doubt whether Twilio will be a successful business, and I obviously wouldn’t own a 12.0% position if I didn’t see the bull case. However, I just can’t figure out why the stock isn’t seeing the same love as most of our other companies. If nothing else, it doesn’t seem to be getting the same hyper growth premium. That observation is now nagging at me for the second month in a row. Given its current revenues and market cap, I find myself wondering if the market views the SendGrid acquisition and subsequent May secondary offering as signs TWLO is creeping toward the top of its organic S-curve.
There’s no denying SendGrid massively increased TWLO’s customer base. However, the acquired tech and email functions are surely more tuck in than game changer. Likewise the narrowband IoT announcement was interesting and is a likely harbinger of the future, but how much does that expand their foreseeable TAM as the company continues to get larger? And finally, after adding an arguably second-rate executive from stodgy old GE to its board, was FlyingCircus right all along in pondering whether Twilio has jumped the shark (https://discussion.fool.com/given-immelt39s-entire-career-experi… )? Regardless, I’ll be paying very close attention to July 31 earnings, particularly any comments about gross margins, the SendGrid integration or any potential TAM expansion.
I really do hope this rant ends up being much ado about nothing, but I am definitely on alert. And it’s fair to point out that the last time I expressed doubts like this was my February recap on Alteryx (https://discussion.fool.com/stocknovice39s-february-portfolio-re…), which now happens to be my biggest position. Go figure.
In the meantime, I have a second quick straw poll…am I being a thoughtful contrarian or just impatiently paranoid?
To kick things off I already know what ethan1234 and GauchoChris think from earlier today:
High: Provides the building blocks for developers to easily and powerfuly allow communication of all forms. Has reached a scale that it no longer has much in the way of competition
Low: needs to effectively integrate and cross sell sendgrid (not exactly a low but a risk), margins aren’t great as TWLO is a middle man between telephony and developers (i’m reaching here)
TWLO: TWLO has shown continued excellent business metrics almost across the board. The only negative is the lower gross margins compared to those of my other stocks. I expect TWLO to be a much, much larger company eventually so long term I see it having similar potential to MDB. A big part of the potential is due to TWLO’s disruptive power in multiple huge markets. This long term vision for the company gives me greater confidence to speculate/trade on TWLO in the short term when I see opportunities. This is because if I am wrong on the short term timing then I can still avoid losses assuming the stock eventually goes up (short puts can be rolled forward indefinitely). So for TWLO I see some catalysts that led me to speculate on a short term trade (about a month). The earnings are likely due out on 7/31 or 8/1 although the date has not been announced yet. The SendGrid integration is well underway so there’s a chance for some cross-selling synergies. Also, TWLO just announced some improvements to SendGrid’s marketing emailing capabilities (see press release from last week). Then there’s their annual Signal conference on August 6-7. TWLO and the other SaaS companies tend to announce new products at their annual user conferences so there’s likely going to be some interesting new stuff. All of this can move the stock and lead to analyst PT upgrades. So I sold the Aug 2 $160 puts to buy calls ($142 and $150 strike prices) that expire on 8/23. The 8/2 expiration date of the short puts was chosen to maximize premium plus give a chance for worthless expiration immediately after the expected earnings release (assuming it’s on 7/31 or 8/1). If the stock doesn’t rise to $160 after earnings then they can be rolled forward on a weekly basis. The 8/23 expiration date was chosen to give analysts time to digest any new products from Signal, update their financial models, and issue PT increases…then time for the stock to respond to this. TWLO is a 19.2% position for me and I’m happy with this allocation.
Thanks in advance to any others who want to chime in.