Is Twilio good or is it bad? Is it a buy or is it a sell? We are people of action, and we want to know which way to go.
May I suggest a more nuanced approach? May I suggest that Twilio is neither good nor bad, and possibly neither a buy nor a sell?
If you’re the type of investor that wants to buy companies with sustainable competitive advantages, hold them for long periods of time, rarely ever trade, beat the S&P over time, Twilio might be a fine choice for you.
If you’re the type of investor who is looking for companies that can give you the maximum return, no matter how vigilant you have to be, how much you have to read, or how much volatility you have to endure, then Twilio probably isn’t a very reasonable choice at this point.
I think that pretty much explains the schism we’ve seen here over Twilio since they reported last week. There are investors who participate on this board in both of the groups above. If you’re in the first group, you’re probably going to think we in the second group have insanely concentrated portfolios, that we’re too quick to sell good companies, and that we are cruising for a bruising when the market waters get choppy. If you’re with me in the second group, you probably think the first group sure seem concerned over a silly little 30 or 40% drop in their portfolio!
Anyway, I think we can all get along, but I think we need to remember the lenses through which we’re seeing Twilio, or any other company we discuss. We can talk about the reasons we do what we do, but everyone has to make their own decisions.
My reasons for selling?
Growth is slowing. NER, top line, organic…everywhere you look, growth is slowing, and the decline is more rapid than I expected.
They don’t seem to realize they’re slowing down. Even if you accept their 75% growth number (which I don’t), compare that to their OpEx growth. They went from $117m of expenses a year ago to $253m in this quarter. Expenses were up 116%!!! This isn’t sustainable!
If they’re spending money faster than they make it, why wasn’t EPS negative? Because they paid for it with stock. This quarter alone SBC was about $70 million. In Q2, same thing. Again, not sustainable!
If you want to debate those points, I’m in. Let’s talk! But if you want to debate whether Twilio is a good company? I simply don’t have a strong opinion about that. Maybe they are? I think they have created a valuable offering. Their numbers make it look like it doesn’t sell itself, but smart people like Bert disagree. So I’m willing to say the jury’s out.
Can they admit that hypergrowth is over, change their spendthrift ways, and settle into a sustainable business model? The market is saying yes. And I don’t necessarily disagree with that either.
But this isn’t how I invest. I look for the most favorable situations I can find, and Twilio no longer qualifies. I am not confident they will beat the market going forward, and I’m highly confident they won’t beat it by as much as AYX or many other companies.
That’s no slight to what Twilio has built. That’s just what the numbers are telling me.