Alright, all you Twilions. Have at it…
TWLO – Well, hello there Twilio! Though it rarely gets as much attention as some of my other holdings, February earnings once again proved TWLO is a damn fine company (https://giphy.com/gifs/teamcoco-hpG3BsNtQxVYkattu2/fullscree…).
The surface performance included 65% revenue growth and an 11th straight quarter of positive earnings. However, to keep things kosher – l’chaim! (https://www.dictionary.com/browse/l-chaim) – we must acknowledge one-time revenues from the Segment acquisition ($23M) and political spend ($22.7M). The good news is even after backing these out, TWLO’s recent business looks very strong (oldest to most recent quarter):
• YoY Revenue Growth (unadjusted): 46%, 52%, 65%
• YoY Revenue Growth (adjusted): 46%, 52%, 52% (at a $2B+ organic run rate)
• QoQ Revenue Growth (unadjusted): 9.9%, 11.8%, 22.4%
• QoQ Revenue Growth (adjusted): 9.9%, 11.8%, 12.1%
• YoY Gross Profit Growth: 37%, 42%, 62%
• Expansion Rate: 132%, 137%, 139%
What makes it even more interesting is customer trends suggest TWLO can keep up the momentum. Overall customer growth accelerated from 21% to 24% including some Segment adds. Global 2000 transactions increased 76% during 2020 with the number of 7-figure deals up 93%. The number of users on the Flex customer engagement platform quadrupled. Twilio now boasts over 221K customers and more than 10M developer accounts. Even better, the accelerating expansion rate implies this rapidly increasing customer base is spending an increasing amount of money on Twilio’s products.
I believe this is where the Segment acquisition can be a real winner. The combined company lets Twilio change its messaging from customer communication to end-to-end customer engagement. Fortune 1000 client Camping World was used as an example. Camping World currently has three different brands with three different websites and three different customer databases. Twilio/Segment can now help Camping World collect, analyze and gain insight from its scattered data in a more consistent way. Adding Segment’s capabilities lets Twilio move from the simple facilitation of mechanical communication to directly influencing the entire customer conversation. That will be powerfully sticky if TWLO can pull it off.
Predictably, management is not only proud of 2020 but openly excited about 2021. As CEO Jeff Lawson explained it, the Segment acquisition adjusts Twilio’s mission “to [improving] every interaction that businesses have with their customers.” And one thing we know for sure is an ever-increasing number of those interactions happen digitally. Lawson called it the “API economy,” and I think that’s a great description. The beauty is Twilio’s quickly becoming a one-stop shop for clients to navigate that economy in whatever way they choose. In that regard, I share management’s excitement.
Shortly after earnings, Twilio announced a $1.54B secondary offering (https://investors.twilio.com/news/news-details/2021/Twilio-I…). I have no idea how the money will be used, but management has shown it knows what it is doing when given some cash. The SendGrid acquisition has proven to be a good move. And while it is still early, the potential synergies with Segment are easy to see. Despite the dilution, I’m totally fine with Lawson refilling the coffers in case another opportunity presents itself.
I wrote in December Twilio had lined itself up for a very interesting 2021. All it needed to do was execute. So far, so good in my oh-so-humble opinion. I see no reason not to let this one run for a while, and I even added a smidge post-earnings with some of the dwindling cash I had left.