Moves Made Before Earnings Season

Earnings season is nigh upon us!

Two companies that I have already added to (in small amounts) are TDOC and TWLO. TWLO is a new 2% position for me (sort of, I sold it back in March or so *facepalm), and TDOC is now a 4.5% position for me. Per, TDOC will report earnings on 7/29/20, and TWLO will report on 8/4/2020.

TDOC has seen yoy revenue growth sky rocket. Just a few quarters ago, they were only growing revenue 27% yoy. Most recently, it jumped to 40%, and they estimate this upcoming quarter will show revenues growing between 65%-73% yoy. If they can improve upon and maintain this kind of break neck growth, TDOC will be approaching the same level as board favorites DDOG and CRWD (speaking only in terms of rev growth).

For more than the last two years, TDOC has maintained a net loss between $20mm-$30mm per quarter. This does not sound great (ideally, they would get increasingly profitable as they scale), but on the bright side, they are not becoming increasingly unprofitable. So you could argue that they are managing their business wisely by not letting the business become too unprofitable, while simultaneously they are spending money in the right places and in the right amounts to grow the business rapidly and capture market share.

And thank you @clydjaz for posting that excellent article on the telehealth industry from McKinsey:… A few points from this article I will throw out there:
–Only 11% of consumers had used telehealth services in 2019 – in 2020 that has increased to 46%.
–“Providers are seeing 50x to 175x the number of patients via telehealth than they did before”
–“Up to $250 billion of current US healthcare spend could potentially be virtualized”

I talked about this already in my last monthly stock report so I will not discuss in depth here, but if you are worried that zoom will eat teladoc’s lunch, don’t forget that a lot of successful companies have equally or greater successful rivals. There can be multiple winners (coke/pepsi, Windows and Mac, Starbucks and Dunkin Donuts… etc)

As we all know, I don’t have some sort of magic crystal ball that says TDOC will crush earnings, and yes, stock price appreciation has been significant this year for TDOC. Expectations are high. One last thing about TDOC though. TDOC’s P/S is still only 26. This would make it among the cheapest of stocks that we follow. I am aware that cheap is often cheap for a reason. But I don’t think TDOC deserves to be this cheap, and I don’t think it will be cheap for long.

On to Twilio - there are 2 reasons why I’m especially interested in TWLO these days. Firstly, I am a software engineer and my company tried out TWLO in a hackathon that TWLO paid for (it’s a marketing event for them, an opportunity to impress potential clients, such as my company). TWLO’s API was extremely easy to use and well documented. Put simply, it “just worked” and saved us tons of hours of time. One drawback was that the video API they have is not as good as Zoom video in my opinion. However, out of twenty or so software engineers who tried out TWLO’s video api, only me and one other person thought Zoom has better quality video.

Quick side note - it’s funny, on this board, it is basically taken for granted that Zoom is the best. I know it, you know it, everyone on this board knows it. But out in the real world, a lot of people still think Skype is fine lol. In this case, TWLO is probably not better than zoom in terms of video quality, but TWLO was “good enough” video quality for most people not to care :slight_smile:

Reason 2 I’m interested in TWLO is that they attributed revenue growth last quarter to “usage based pricing”, which spiked during covid. For example, their SMS api charges per text, their video api charges per minute per user, etc etc. And according to sources within my company, TWLO’s prices are “cheap”. So it’s a win for TWLO’s clients, and it’s a win for TWLO. Just to be perfectly honest and clear, I have no idea if the usage spike trend will continue. Actually, because of usage based pricing, revenues could probably deflate equally rapidly (although I highly doubt that’s what we’ll see).

And lastly, since I mentioned it for TDOC, I will also say that TWLO’s P/S is similarly low, around 27. As Saul says though, not all revenue is created equally - some sales are worth more, especially when they are rapidly accelerating (re: zoom) and have high margins. TWLO’s revenue is not growing like Zoom or even DDOG, and its margins are historically in the mid 50’s, which would put it on the low end of our board favorites. TWLO is probably more closely comparable to say, Coupa, which sports a P/S of 46 but has gross margins in the mid 60’s and revenue growth around 50% yoy.

So TWLO is probably more speculative than TDOC, but I think both stocks have enough upside to be worth exploring as smallish starter positions.