Merrill Lynch has a positive piece come out on TWLO today in light of the ER (TWLO was a top 2019 ML). They think the pull-back is a buying opportunity, despite the near-term issue with customer credit error and tough comps (from one-off non-recurring revenue in 2018) rather than market demand or competitive issues.
Here are some quotes (with my take on some of them – for whatever it’s worth):
“The stock trades at 6-7x CY21E EV/revenues on our base case/upside case scenario, a bottom-like valuation for a market leader that we think should be able to grow revenues 30%+ over multiple years.”
(my take: would prefer to see >40% for a couple more years. 30+ is not all that impressive coming from a much higher growth rate.)
“Twilio’s base revenues excl SendGrid, missed slightly by 2% (47% y/y vs our 49%) and Twilio lowered base revenue guide by $12mn for Q4 (or 33% y/y vs prior 40%). Unfortunately, this outcome is a result of a good thing – management expressed their confidence in the business entering 2019 by guiding BReS initially to 45% vs 30% initial guide for 2018.”
“Adding back the $5mn (from one-time $5mn customer credit charge), 3Q BReS would have been 49% and expansion rate would have been 135% vs our 134% and the reported 132%.”
“The 33% guide off of the 77% may look disappointing, but normalizing for the 10% one-off revenues last year, the core business is guided to grow 41% off of a 67% comp.”
(my take: nice explanation. With the one-off adjustments, the numbers look better that the ER. The CC could have done a better job explaining the math.)
“Flex, IoT, Conversations, Verify, Autopilot, international, increased sales capacity, increase
in Global 2000 penetration beyond 10%, and channel/systems integrators provide many growth vectors that should support sustained 30%+ growth.”
Near term, ML sees:
acceleration in the expansion rate in 1Q20 after it bottoms out in the low 120s in Q4 (~130% normalized for one-off revenue items in Q4);
comps getting progressively easier throughout 2020.
ML’s new price target is $138 (from $160), based on 13x C20E EV/revs (15x before), which is still a 25% premium to high growth SaaS comps (SaaS group valuation multiples have compressed) as
organic base revs at 47% growth is well above SaaS peers at 30%+.
We will see, I guess.