Twlo crushed

Investment Analysis Clubs Saul’s Investing Discussions
#25

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!

#26

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:

  1. 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);

  2. 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

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#27

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

37 Likes
#28

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

8 Likes
#29

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

1 Like
#30

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.

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#31

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.

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#32

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.

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#33

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.

3 Likes
#34

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.

3 Likes
#35

On a related note and to carry this concept one short step further; I am also a subscriber to Beth Kindig’s Beth.Technology. I have referenced her work in the past on this message board with her permission. I requested her permission and it was provided to me in writing in an email from her. I went this extra step to get her permission because her website clearly states that information provided on her service can not be reproduced in any form. I do not reproduce her reports or content, but I do discuss the concepts and information provided in her research just as I did earlier today from an alternative website that does not advertise the same restrictions on their subscriber content.

1 Like
#36

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.

It is a common courtesy to avoid referencing proprietary information (including MF newsletters, etc.) in any paid service until it is public knowledge. In all fairness though, moo gave a synopsis of the opinion first.

I believe I have failed to follow this advice perfectly myself in the past. It can be difficult to avoid at times.

Cheers,

Dave

2 Likes
#37

hnmc,

You are being morally blind here (on purpose?). This is a really simple issue.

The MF publishes newsletters and charges for subscriptions. It’s off limits to publish their recommendations on this board until 30 days after the recommendation. Why? Because subscribers pay for first access to those recommendations and who is going to pay if they can get it for free here. It makes the subscription almost worthless and it’s unfair to paid subscribers.

Bert publishes a newsletter and charges for subscriptions. It’s off limits to publish his analysis and recommendations on this board until they are public on Seeking Alpha, and if they aren’t published on Seeking Alpha, for at least for a month (unless you get permission). Why? Because subscribers pay for first access to those analyses and recommendations and who is going to pay if they can get it for free here? It makes the subscription almost worthless and it’s unfair to paid subscribers.

Simple as that. It’s just being fair to Bert, and fair to your fellow paid subscribers who don’t want to see their paid subscription devalued.

From the Rules of the Board:

“On Blabbing you’ve probably all got the message by now, but for those of you who are new to the board, you just can’t, CAN’T blab about new Motley Fool paid board recommendations on our board (or other free boards). The Fool is incredibly kind to run this board for us for free, and by giving away their recommendations you possibly endanger our board’s existence and everything we have built here. That ought to be pretty obvious to everyone. Please pay attention. Similarly, you shouldn’t post what Bert said in his paid board until it becomes public on Seeking Alpha, or what other paid subscriptions say. It’s unfair to paid subscribers. That’s just common sense.”

Saul

28 Likes
#38

Saul,

I posted an apology to you and to members of the board in my previous post. I am not sure why you elected to impugn my character by calling me morally blind; insinuating that my honest mistake was calculated.

Again, my apologies.

42 Likes
#39

Just for the complete picture:
I asked Bert if he would like to comment on hmcproperties posting, and if it’s fine for him if I publish his comment. He gave me permission, so here is Berts reply:

I really am not a cheerleader for any company. Twilio has plenty of cheerleaders starting with the CEO, Jeff Lawson. I wrote what I wrote because it resonates with me. I do not know if your company uses Twilio tools or not. But many people do not understand Twilio because it is quite different in some ways than other IT vendors. Twilio, like some other companies is all about developers. When I wrote the article, I intended/hoped that some readers might take the time to read what 3rd parties say about Twilio and where it stands in the evolution of CPaaS. Apparently a forlorn hope. If I saw some sign that someone else was competing successfully with Twilio in CPaaS or that CPaaS demand was withering, I would have said so. There were no such signs. Many people including some who write on boards do not understand that this company sells tools to developers who create apps that are then deployed and hopefully used by their intended market. It is a different paradigm than other software-it means that there are hundred of thousands of active accounts and millions of users. I tried to explain that this is why focusing on the DBE fall makes little sense, and why new account acquisition and the acquisition of enterprise users should be lodestars of investor perception.
As I limit myself to the number of positions I hold, holding Twilio means I can’t own DataDog or something else. The question for me isn’t Twilio in isolation but whether I own Twilio or DataDog or Health Catalyst. The way I invest, I cannot own all of these at the same time. So, no I hold Twilio for the long term with the idea that it will produce returns equivalent to DDOG or SMAR or HCAT. What I did say, and will absolutely reaffirm, is that given current sentiment, Twilio shares will probably be range bound for a few weeks or months. There are too many people who think they were promoted for the case to be otherwise.

I do hope it does not offend folks-but it is really what I believe. I almost never change my opinion because of guidance or sub-headline results in a given quarter. I really would have to see something that suggests that someone else was becoming a runner in the CPaaS space-and I didn’t see that last quarter. Pretty straightforward.

56 Likes
#40

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.

A note about copyright, it does NOT protect ideas, only the expression of them. In other words, you may not reprint copyrighted material but there is nothing – except private contracts and company secrets – to prohibit people from discussing ideas learnt from any source.

Denny Schlesinger

3 Likes
#41

A note about copyright, it does NOT protect ideas, only the expression of them. In other words, you may not reprint copyrighted material but there is nothing – except private contracts and company secrets – to prohibit people from discussing ideas learnt from any source.

Regarding my message board post in question and my expression of opinion on analysis made on a paid subscription service, I do not think the argument is whether or not I violated copyright, because I certainly did not, but whether or not I violated the rules of this message board, which I certainly did.

Guilty as charged; I hereby enter my guilty plea and I have accepted and endured my public flogging. I hope we can all now get back to the business of this board.

Thanks,

hmcproperties
Harley

38 Likes
#42

That’s really an interesting response by Bert. In his opinion, TWLO holds just as much appreciation potential as any other stock discussed here. On this board, people have sold TWLO because Flex is not taking off right away and Sendgrid is a slower growth company.

In other words, there are. Any who are very quick to cut a stock and give it no slack whatsoever. I have seen people sell MDB because of tougher comps in the quarters ahead.

Which is the right approach? In my opinion when you give such little slack you’re just as likely to sell a stock for unfounded fears. Right now everyone is jubilant and buying into AYX because of their 65% revenue growth. Coincidentally that is the exact same growth rate ZS hit two quarters ago which was their high point. Two quarters later short term (potentially a few quarters to permanent) issues came about that nobody saw coming. Good things can take everyone by surprise too and could easily be what happens to TWLO next quarter.

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#43

Right now everyone is jubilant and buying into AYX because of their 65% revenue growth. Coincidentally that is the exact same growth rate ZS hit two quarters ago which was their high point. Two quarters later short term (potentially a few quarters to permanent) issues came about that nobody saw coming. Good things can take everyone by surprise too and could easily be what happens to TWLO next quarter.

I definitely don’t see AYX continuing to accelerate revenue growth past 65%. I’ll be happy with revenue growth above 50%. There are huge differences between ZS then and AYX now. ZS had a very high valuation as compared to AYX currently selling at 15.3 times EV/sales. Also, AYX has better margins coming in consistently in the low 90s and have clear path to 30-35 FCF margins. There is no way ZS or TWLO will ever produce that percentage of cash flow. As we have seen from the analysis of CRM and TEAM, more mature software companies will be valued based on FCF. TWLO is losing money and is barely cash flow positive, so I think AYX is a much better investment right now.

https://discussion.fool.com/fcf-is-the-future-34323092.aspx

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#44

I’ve been lurking around these threads for over one year - thinking that the group has a bit of genius investing going on, but now - not so much.

1 Like