TWLO deferred sales into 2020

I lightened my TWLO position after the Q2 2019 earnings results. I didn’t sell all for several reasons:

  1. I wanted to give cross selling a bit more time to work.

  2. I wanted to Flex a bit more time to show traction.

  3. I didn’t want to realize any more capital gains in 2019 because selling in 2020 would result in a lower tax rate in my situation.

But I was disappointed in the Q2 2019 results.

Fast forward to yesterday. I had given TWLO a chance going into Q3 results. I was disappointed again. My impression of the tone of the call (I actually listened rather than just reading the transcript) was not at all upbeat. Some of the answers to questions were not given with confidence (more of an unsure voice is what I heard at times). Specifically, when asked if cross selling was on track this answer was yes it’s on track but the tone of the answer so hesitant that I have to wonder; if I were in a poker game, I’d be calling that as a lie/bluff/exaggeration. When I heard about the Flex progress was that “it’s still early adopters”, I concluded that Flex, while it sounds like it will be a great product, is not yet a sure thing (we’re relying on hope I believe). The organic growth was in the mid-50s for the past 2 quarters. Now, it’s down to 47% and we have the toughest comparable quarter in Q4. These concerns are on top of concerns that I’ve had all along: a) 55% margins with promises of long run (organic TWLO) margins of 65% that may never be that high and b) lots and lots of SBC. Needless to say, I am disappointed again. Time to cut bait…at least for me.

I’m out. Cost basis of most of my shares are around $43, and I don’t want to realize any more gains than necessary until 2020. I know options are off-topic, but this is a special circumstance especially since Saul also waited to unload his shares because he didn’t want to pay taxes for 2019.

This morning I locked in my sale price by buying the Jan 2020 expiration $95 puts. I paid for these puts by selling Jan 2020 expiration $95 covered calls. This will allow me to sell the shares in January for a guaranteed price of $95. I even received a small net credit (about $0.25 per share) for the options trade. My upside is also capped at $95. The only thing that can go wrong is that the holder of the covered calls that I sold can exercise those option before the end of the year which would force me to sell my shares early. This is unlikely to happen unless the shares rise significantly above $95.