TWLO reports Q4

Investment Analysis Clubs Saul’s Investing Discussions
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I know Saul and others have moved on, but TWLO has been a long term source of discussion on this board, so I thought I would mention their latest report to see what others think. Stock was down AH and today on forecasted future losses, but I think there were some positive things in this report.

Specifically, this quote from Jeff Lawson:

As I’m sure you’ve noticed, we have an ambitious investment plan for 2020. While we could take a profit this year, I think, that would have been a wrong decision. With a generational opportunity to disrupt not just communications, but also customer engagement software, the right decision is to invest for long-term growth and market capture, and that’s what we intend to do.

Other highlights:

More than doubled the number of 7 figure deals compared to 2018

Signed a deal with Paypal

Have converted several former Sendgrid customers to the full Twilio platform

Dollar-based net expansion calculated using base revenue of 124% in Q4

Gross margins of 57%

Heavy investments to open in India

Revenue:

Revenue up 65% YoY (including Sendgrid)

Taking out sendgrid, it was just up 36% YoY

Sendgrid revenue alone was up 30% YoY

Projecting 30-31% growth for 2020

Now jumping into the quarter. Q4 base revenue, including Twilio SendGrid grew 65% year-over-year to nearly $307 million. Organic base revenue was $253 million, up 36% year-over-year, strong growth against a difficult comparison from last year. As you’ve heard, Twilio SendGrid had a great finish to the year, delivering nearly $54 million of revenue in the fourth quarter, up more than 30% over last year. Total Q4 revenue was $331 million, up 62% year-over-year and 36% organically. For the full-year, we delivered total revenue of $1.13 billion, up 75% over last year and 47% on an organic basis. SendGrid contributed $177 million since the February 1st acquisition date. This will be the last quarter that we break out SendGrid revenues separately.

So it does seem that the growth story has permanently changed, but unlike some other companies we follow, they are being open and honest about it, not trying to hide it and pretend its something else.

I can understand why some on this board have moved on to the high growth companies that make TWLO look weak. But at a >$1 Billion revenue company, +30% growth is uncommon. I am ok with holding long term options on TWLO but do think other companies will provide better returns for 2020.

Any other thoughts?

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So it does seem that the growth story has permanently changed, but unlike some other companies we follow, they are being open and honest about it, not trying to hide it and pretend its something else.

I think TWLO is a fine company, with fine leadership, growing and owning a space.

Personally, I’m ready to see their reporting moving forward now that they have lapped the SendGrid acquisition. I disgree with the bolded statement as it was quite the math exercise until this quarterly report to figure out TWLO growth alone (they didn’t break it out).

My issue with TWLO has been, and continues to be, a relative question. How much of my money do I put in a company that is growing mid-30% with a mid-50% gross margin vs a company that is growing 60% with 70%+ margins.

It remains on my watch list. It’s becoming a GARP play, but one with little to no competition that I can see. But I’m just interested in sports cars vs a mini van at this time.

Just a Fool

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Hi all,

I’m one of the people who still own Twilio. I think the quarterly report was a bit underwhelming, as can be seen by the market’s reaction. Basically, what has been pointed out on this board already in terms of deceleration of growth has played out further, and – most likely - will continue to play out.

Some additional thoughts:

  • Organic revenue growth of “only” 36%. They grew 77% organically in Q4 2018. That’s serious deceleration, however, looking at my numbers they grew “only” 40% in Q4 2017. The logical conclusion of this is that Q4 2018 was an outlier, not the other way around. Then again, wasn’t 2017 the year they had problems with Uber/Whatsapp doing less business? I can’t remember off the top of my head because I wasn’t invested back then. Regardless, it should still be noted that 36% organic growth at a billion $ run-rate is no small accomplishment. It’s one of the reasons I kept Twilio because it seems much more established at this point than other companies we follow.

  • DBNRR of 124% compared to 132% last quarter and 147% in Q4 2018. That’s a big drop-off. This probably the most concerning metric for me at the moment. Twilio used to be quite extraordinary on this metric, posting net retention rates above 150%. So this is something to watch even closer going forward. Listening to the call, management seemed upbeat as ever – I didn’t detect any negativity or hints that there might be a problem. They pointed out specifically that the competitive landscape didn’t change dramatically. Their explanation is that they are running into the law of large numbers, deals are getting bigger, more strategic and more sophisticated. That’s probably where their main focus is and why they saw a doubling of 7-figure deals over last year (a rare fact in the ER that is worth getting excited about).

  • They are expecting a Non-GAAP operating loss of $50-$60 million in 2020. While it’s nice that they keep investing for growth, this is another yellow flag. I have the following Non-GGAP operating losses in my notes from 2016 to the 2020 guidance: $-12, $-21, $3.3, $-2.1, $-50. That’s not very encouraging, to say the least. If you look at it from a margin perspective it looks a bit better, though: -4.3%, -5.3%, 0.5%, -0.2%, -3.4%. Still, numbers are not trending in the right direction. Combined with the decelerating top-line growth that’s really a hard cocktail to swallow.

Still haven’t decided to sell yet, though. Maybe better to sleep over it and collect some thoughts.

Best
Niki

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I thought the guidance for next quarter and full year was higher than I would expect.

They certainly saw some uptick last quarter on political spend and I would think that with election year, TWLO has strong revenue upside (vs their guidance) feasible this year.

Even with all of these, it is pricey, I dont have position today… I would consider buying if TWLO trades below $100.

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Although the market didn’t seem to like TWLO’s guidance, most analysts actually increased their target prices.

               New PT  Old PT
Goldman Sachs   $140    $135 
Canaccord       $140    $125 
Keybanc	        $141    $127 
Piper           $151    $145 
Needham         $145    $125 
DA Davidson     $140    $125 
Robert W. Baird $150    $140 
Morningstar     $143    $132 
		
Average         $144   $132
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