TWLO growth

Thanks, Saul, for posting your monthly portfolio. You own 2 stocks that I don’t: TWLO and OKTA. I have been thinking about re-entering TWLO for a while now. After TWLO reported their Q2 2017 quarter, I wrote this:…

It was a somewhat long post so here the part that pertains to TWLO:

Now let’s get to the reason what prompted me to write this post. Yes, Twilio. People have said that revenue growth has slowed. First off, this was a reference to guidance so it hasn’t actually slowed yet. Now, I say that someone who says that revenue growth has slowed is being fooled by an average. So what’s the specific problem in this specific case? There are several.

1) The figure used was y/y growth of total revenue. I would just use the recurring revenue and not total revenue. They call this Base Revenue and it is more indicative of what can be expected in future periods.

2) An isolated population within the revenue number is declining while the rest of business is growing. This isolated declining business is the Uber business. Management has said that they are not seeing such declines in the other customer accounts. So if you include this declining revenue portion in projecting future growth, you will get a number that’s underestimating the longer term growth opportunity. This is particularly true when one considers that decline in Uber business will be complete in the next several quarters.

3) Even within the Uber business, the revenue is not homogenous. You have lower value (to Uber) TWLO costs and you have higher value (to Uber) TWLO costs. From what I can gather is that Uber has been able to bring some of the easier communications functions in-house. It also appears that Uber has extracted some additional discounts from TWLO for other lower value communications. It was also reported that TWLO and Uber continue to work on other use cases. I would assume that this ongoing work is for higher value or more complex communications. So in 2-3 quarters the decline will be complete and you will be left with Uber once again growing its contribution to TWLO’s revenue.

So what do I think this all means? We will likely see a big overall decline in TWLO’s Uber revenue in Q3. We will continue to see decline in Q4. But remember that within this decline there is growth in higher value revenue and there is growth in overall usage as Uber’s communication messages are increasing as Uber grows its network of drivers. So we have TWLO’s largest customer temporary cutting back on its TWLO usage but once the cutting back is done then Uber’s overall business will grow again. In the end Uber will be a large customer but smaller in relation to the overall business. So I see it as a temporary drag on revenue growth because even the Uber business to TWLO will resume growth within a year.

If you think that Uber is a canary in the coalmine (other TWLO will do the same) then show me the evidence. You would see gross margin pressure. You would see decline Net Dollar-based Expansion. You would see TWLO management confirm that when asked on the conference calls; they were asked after Q1 and after Q2 and they denied that a) other customers are getting any non-standard price concessions, and b) other companies are moving business in-house. In the future if someone makes a claim then they should really back it up with evidence. And don’t be fooled by the average!

So here we are about to get the 3rd quarterly report after I wrote this. Yes, it would have been much better for me had I gotten in one quarter earlier but I have to agree with Saul that the opportunity looks very good from here with the revenue growth, the margins, and the dollar based expansion rate performing so well. These indicators are the evidence that I needed to confirm the hypothesis from last Summer.



Thanks, Saul, for posting your monthly portfolio. You own 2 stocks that I don’t: TWLO and OKTA. I have been thinking about re-entering TWLO for a while now.

Hi Chris, you might take a look at Okta too. As I wrote in my end of the month report, it’s hard to even imagine a better quarterly report than the one they produced. Go over those figures!



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Okta ttm rev 260 m
Market cap 4.4 b
P/s 17

At what point does a prudent investor say this might b a bit rich?

Certainly not value territory.

Just an observation.


Now we can also see how well it worked out for Uber to try to develop their own autonomous driving technology, rather than work with a leading technology like Nvidia or Waymo (Google).