Monkey’s question is this: how much higher will the price be three-five years from now? Answer: lots higher.
An absolute statement…Bear says those are no good.
If WDAY grew rev rapidly but stock did nothing for 4 year stretch, maybe there is room for doubt?
Dreamer
I too concur with Monkey’s take on the call.
Worth noting that they said that Flex wouldn’t have a meaningful impact on their numbers until 2021/22, but they’re happy with the way things are headed. They mentioned that it hadn’t “crossed the chasm”, which of course, is expected, as it’s still very new.
Also, Sendgrid growth was I think 31%.
Alex
The reason I ask this is we have known for a long time that guidance was going to drop into the 40-50% range for q4 since that is the first quarter to compare sendgrid+twlo to itself.
Ethan, they acquired Sendgrid on Feb 1st. They didn’t have SendGrid at any time in the 4th quarter.
Saul
ugggh. Saul you are absolutely correct. I’m a quarter off. Worse than i thought!
Jeff Lawson said the following in the Conference Call
Our third quarter results were strong with total revenue growing 75%, tremendous growth at this scale, that reinforces our view that we are still in the early days of this market opportunity.
That’s VERY misleading and disingenuous, as part of the growth is combining two companies compared to one. It’s not a 75% growth rate, and Jeff knows very well that they aren’t growing at 75%. When pinned down by analyst questions they acknowledged that Twilio grew organically at 47% and Sendgrid by even less (30% I think I remember).
An “Adjusted” or Actual growth rate, calculated as Total Revenue compared to last year’s Twilio revenue + Sendgrid revenue, would probably give them an adjusted actual growth rate of about 42% or 43%, so crowing about “revenue growing 75%, tremendous growth at this scale” is outrageously misleading !!! It’s embarrassing!
Just my opinion. I trimmed another 15% off my current position at $100.50 in the premarket.
Saul
I have now sold ALL my Twilio – one of my largest positions until yesterday’s earnings call.
Yep. They really had an awful quarter. As Saul points out:
When pinned down by analyst questions they acknowledged that Twilio grew organically at 47% and Sendgrid by even less (30% I think I remember).
And it’s not going to get better going forward…probably will slow just due to their size and scale. So we’re looking at about 40% growth, maybe lower. That’s obviously not awful, but what is? The valuation. They are still at a PS of 14…I could see that dropping to 10 or even less if they can’t grow over 40%. The stock price could eventually be buoyed by actual EPS, but currently their PE is over 600 and even at 20% of revenue (which is a LONG way off) it would be a PE of 70. This is not a bargain, or a buying opportunity. This is a selling opportunity. I’m thankful I got out with it only being down about 10% today.
If Twilio can make steps toward profitability, shares you own today might do ok in the long run, but this is no longer a world beater. To operate as they are, 40% growth is not enough.
Bear
I also sold out completely. Management was very squishy all around. Which is worrisome from this historically non-squishy bunch.
Growth is underperforming. The overcharge thing. Again squishy. The lowered guidance. And then this???
Let me take a moment to discuss our current revenue disclosures and the change we are planning to make. Given the size and scale Twilio has achieved, we believe the variable revenue designation has become less meaningful and that total revenue is a better way to evaluate the overall business. Variable revenue has materially declined as a percentage of the total, 7% this quarter, 7% last quarter and less than 10% in 2018 prior to the closing of the SendGrid acquisition versus 16% in the quarter before we went public. Accordingly, beginning in Q1 2020, we will longer breakout base in variable, but we expect to continue to disclose the contribution from WhatsApp through 2020, which constitutes the majority of the variable revenue category.
One important note regarding this change is that dollar base now base revenue, so we will be shifting the basis of our expansion metric to total revenue on an ongoing basis and we will provide historical data using total revenue to normalize your models. Dollar-based net expansion rate was 132% in the third quarter, a very strong rate at this size and scale especially coming off of difficult compares from 2018. Additionally, the credits I mentioned impacted DBNE by a few points in the quarter.
For two years we have been told to base the performance on base revenue and now we’re just going to do total. So all this other craziness going on and oh, we want you to judge us differently now too.
And Saul called it on Flex. Now kicking expectations a year to 2 down the road. Ouch.
Too many yellow flags and a red flag or two.
Darth
Nice post Monkey. I’m not sure where TWLO is headed from here, but business still looks good to me. I intend to stick around and find out. I know about a year ago or so a lot of people started to sour on SHOP. A year later the business still looks pretty strong and the stock price has doubled. Maybe the stock didn’t deserve to double, but I still like the business. Many here are probably much better than I am knowing when to quickly get out of stocks when they feel a downward turn of the business or permanently slowing growth is coming, but over the years I’ve tended to do better when I take a slower approach. For those who can do better making quick decisions, a tip of the hat. I just don’t have that talent, but overall I’ve still done fairly well.
Thanks to all who have made so many wonderful contributions to this board and have done so in such a civil manner.
Don
Saul,
I think you are a bit too harsh with Lawson here. He also said this on the call (bolding mine):
“Yes. Hey, Ittai. So, I mean, despite the manual errors, I think we turned in a quarter growing 47% year-over-year organic at nearly a billion dollar run rate . And so, I’m really proud of what we’ve accomplished. So we’re one of the only companies growing at this scale, at this rate. And we’re very proud of that. We’re focused on the long-term opportunity. This is one of those once in a lifetime changes that’s happening and how companies engage their customers using all of these new digital channels and we’re here to capitalize on that mega trend. And we’re hearing all the right things from our customers about what they need and our ability to provide it. So, I look at it, it’s a great market. We’ve got a great business model. We’ve got a great team and I see them all getting better as we grow. So I’m really excited about what lies ahead.”
I don’t think he ment to mislead anyone.
Best
Niki
Wow…what a bad/sad day for me!! Only time will tell if I made the best decision for me and my portfolio. TWLO had been one of my largest and dearest long term relationships in my portfolio. I began dating TWLO back in April '18 at $41/sh and had continued to invest in that relationship on the way up, as I felt so proud of myself for finding TWLO and we were doing so well together, only to proceed to invest more in my TWLO relationship “on the dips” on the way down, as late as September 30th at $108/sh; as I was convinced that my loyalty to TWLO, good 'ol TWLO would be rewarded! Perhaps I was blinded by emotion. Perhaps I didn’t want to see the signs.
While our early days were great; up as much as +130% (purchase to date) and our most recent time together was not so great; down as much as -12%; the return (purchase to date)on my TWLO relationship, was a mere +2.5% over the past 18 months. TWLO was just not meeting my needs and it was time that my needs were addressed.
Prior to joining this board, I believe I would have been inclined to continue to hold and stay in my long relationship with TWLO; I would not have had the courage to do what I did today. It was easy, it was comfortable. We both new each other and had gotten into our routine. I think I was staying, thinking that we could weather this turbulence with the intent of coming out the other side, at some undetermined point of time in the future, perhaps no worse for the wear.
However, I am hoping that I have now matured a bit today as an investor with the help of my Saul community. Instead of being emotionally attached to TWLO, having been good to me for most of the past 18 months; today, I had the fortitude and self-confidence to disengage, break-up with TWLO and move on! Do what’s best for me for a change!
I wish TWLO the best of luck! I want nothing but the best for TWLO and I believe that under the right circumstances, TWLO can get back on its feet, pull itself back up and make a change for the best. But TWLO will need to do that without me.
For me, I am moving on. I am now a free man! I have given myself the approval to take what I have learned and earned from my TWLO relationship and date again, invest in new relationships. Relationships that will provide better returns in the near term and beyond.
I feel like a new man! Watch out world, here I come!
Never get emotionally attached to a stock.
I learned this lesson from Square. Rode the bull train from 50 to 100…then back down to 60. Very humbling. I even told my friends and coworkers about this stock. It’s super pretty embarrassing to see them a year later and either they ask me 1) when will square go back up so they can sell, and 2) hows my darling square doing.
I learned to diversify, hold solid companies, and to stomach my risk appetite accordingly. Also I learned to never give advice on stocks ever again.
So whats the point of this post? Well hopefully you learned something, as I did…and develop your specific type of investing. Today, I’m a dividend, 5% rule, diversify guy with majority into mutual funds. I still play around with a few SAAS stocks because there is potential in it, but I don’t put to much money into it anymore.
Learn your way and invest wisely!
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.
bashuzi
Saul, I think you are a bit too harsh with Lawson here.
Niki, I think you are being too easy on Lawson. Sure he admitted the organic rate was only 47% when pressed by questioners. But look at the Press Release. It starts off with:
“We delivered another quarter of incredible growth at scale with revenue growth of 75% year-over-year,” said Jeff Lawson…"
and no mention anywhere of the organic revenue rate growth of 47%, or the real growth rate of 42%-43%.
And how did he start off the Conference call
“with total revenue growing 75%, tremendous growth at this scale”
I think the repeated crowing and emphasis about about how 'incredible" and how “tremendous” that 75% growth rate was was just plain dishonest! He knew very well that they only got the 75% figure by combining Sendgrid and Twilio revenue this year and comparing it with Twilio alone revenue last year. Is that the kind of fakery you want from a CEO of a company you are investing in?
Not me!
Saul
ML’s new price target is $138
Bashuzi,
Go ask ML why they deserve a PS of 20. That’s AYX / MDB / SMAR / ZS territory. Why would TWLO deserve to be in their company? It has:
lower margins
slower growth
law of large numbers working against it
sendgrid dragging it down
etc
etc
ML is just wrong. No way this thing will see $138 any time soon. Its current PS ratio is more than generous.
The truth is, if you live by hyper-growth, you die by hyper-growth. Twilio’s is gone, and the stock will now languish until they can re-invent themselves as a medium-growth company (without superior margins). Yikes.
Bear
Based on non-GAAP weighted current shares outstanding and guided FY 2019 total revenue, the P/S is about 18. (If we assume 40%, then at current price, P/S against FY2020E would be about 13, assuming no dilution.)
I think at their current size, they need to start aggressively growing their earnings. Market will look beyond P/S and start focusing on P/E.
bashuzi
Bert just released an article about Twilio in his paid service. It is contrary to a statement like “twlo crushed” and he sees a very bright future in this company.
Saul suggested several times to subscribe to Berts Ticker Target, and I am happy that I did.
I interpreted Bert’s article differently. As a long term investor in TWLO, and having a relatively low cost basis, Bert is afforded the luxury of brushing off the recent pullback by TWLO. I read his article more as a defense of holding onto his TWLO position rather than a loud cheerleading call to invest in TWLO at this point. I understand that he wraps up his article by stating something to the affect of; TWLO at this price presents a great entry point for investors; but he begins that sentence by stating that shares of TWLO aren’t likely to jump back to past valuations in the near future.
At times we all have “confirmation bias” and we find ourselves routing for our investments to not be something that they are showing us they are.
As I put in writing the other day on this board; I am out of TWLO and it was one of my largest holdings in my portfolio. While I believe TWLO will be around for a long time, I no longer see it as being a category crusher that is going to drive the returns that we all strive for as part of this message board.
Investor perspective matters; we all come at this effort from various ages, risk profiles, work-retirement status, goals and net worths.
I’m 56 years old; retired and creating/earning my retirement everyday as I financially advocate for myself through real estate and equity investments. For me; TWLO is no longer a part of that plan.
It was pointed out very clearly in the Monday morning rules NOT to discuss Berts newsletter unless and until it came out publicly as a SA article.
First off I don’t think hcm disclosed anything proprietary. He gave his interpretation of Bert’s enthusiasm.
I did a short subscription trial of Bert’s newsletter. For one month. I cancelled it before The month was up and as soon as I did, I was cut from reading more articles even before my subscription ended. May try it again.
But in that short few weeks, I read that Bert has to placate to the readers who like to hold losses rather than closing them out and moving on. So in other words he may be spending time writing about less optimal companies and have them in the model portfolio.
Understood. I have read the Monday Morning Rules in the past, but obviously missed and/or forgot that reference. My apologies to Saul and the message board members. However, I am a bit confused because members of this board routinely present information, concepts or thoughts that are not original nor their own. Often information presented by members in our discussions has been aggregated from various public and private primary sources. On a related note; I just revisited the site in question and do not see anything on the website or elsewhere in the subscription that restricts the subscriber from using the information outside of the subscription.