Twilio - no sales pitch needed

I originally posted this to the MI board, and thought it might be of interest here.

Eight years ago, I was given the job of building a night-time answering service and iPhone app for doctors on call. When a patient called the doctor’s office after hours, and left a voice message, our software needed to send a notification to the on-call doctor’s iPhone app. The doctor could then tap a button to see the patient’s chart, and then tap a “click to call” button to call the patient back.

But here’s the thing. If the doctor calls the patient back directly, their caller ID would be exposed to the patient. Doctors generally don’t want patients knowing their cell numbers. So the requirement was that the “click to call” button would dial a number that would be answered by our telephony back end app. Our app should then call the patient, and the caller ID shown should be the number of the medical office, not the doctor’s cell phone number. After the patient answered the call, our system would connect the two calls together.

Back in 2012, I had never heard of Twilio. But a Google search of “programmable telephony” landed me right on Twilio’s home page. Found out that they had sample scripts and building blocks for scenarios like the above. I built this “click to call” flow into our app in a few hours with less than 20 lines of TwiML (Twilo Markup Language) code. Would have taken me weeks to build otherwise. Phone numbers from Twilio cost $1 per month, and the calls are about a cent per minute. My credit card was charged all of $3 during the demo and build phase of the app. But after we rolled things out to production, and our app got popular, we were paying Twilio about $700 per month.

The remarkable thing was that there was no sales pitch needed. No sales person from Twilio ever called or showed up to give a presentation to our boss. It wasn’t necessary. All I had to was log in to their SaaS service, put in my credit card, and start playing around. There was no heavy software to download or install on my end, and no exorbitant “client/server” software license to pay up front.

Dozens of SaaS companies grow organically like this. Developers just find them and start using them - no sales pitch needed. I found MongoDB and Talend and New Relic and ElasticSearch and Okta the same way. They were all super cheap to try out and get your Proof of Concept built. We were using all these products way before they went public. I was therefore surprised and delighted to find them all as picks here on Saul’s board about 3 years ago. Peter Lynch once said to know the products you invest in, so it was truly a Peter Lynch moment for me.

Bought my first Twilio shares in Feb 2018 at $34 each. Yes, they were expensive that year, at 11x sales, but I had no hesitation. I’ve since added to my shares several times, and it’s now at $233, so it’s almost a 7-bagger on my earliest purchases. I have no clue whether or not it’s “overvalued” at this price, but I did add to my holdings on Friday morning. What I can say with certainty, though, is that we are still in the early stages of businesses adopting these SaaS products and services, and they have years of compounded sales growth ahead.




Peter Offringa is also very bullish on TWLO. TWLO is his second largest holding (second only to FSLY).He did a great recap (as always) of TWLO Q2 results which can be found here:

His closing comment in the recap was: ‘I currently have a significant allocation to TWLO and it represents my second largest holding. Funny as it might sound for value investors, I consider TWLO to be a “safety” stock. It is unlikely to keep doubling year/year, but I am confident Twilio will continue to grow its revenue along a predictable trajectory long into the future. If nothing else, its position in a large, rapidly growing addressable market assures this. As operating leverage kicks in at scale, this will translate into increasing profitability and cash flow, which should drive the stock price’

I started a position in TWLO on Thursday and will continue to build it out (I also started a position in JAMF because I just like what the company do and as Bert noted their “EPS shortfall had nothing to do with operational performance but was a function of the company accruing taxes at a 25% rate”; and I also added to my DDOG, FSLY and NET positions.)