Down as much as 30% after market…
http://www.marketwatch.com/story/twilio-shares-plummet-as-ou…
My understanding of the drop is that it is because of lower guidance, specifically with their relationship with one of their largest partners (pretty sure they’re referring to Amazon).
My understanding of the drop is that it is because of lower guidance, specifically with their relationship with one of their largest partners (pretty sure they’re referring to Amazon).
It is not Amazon. It is Uber who is multi-sourcing their comm tech. TWLO claims very few organizations are able to do this. Only a few minutes into the call.
Another in the long line of very prescient Saul calls.
A.J.
My understanding of the drop is that it is because of lower guidance, specifically with their relationship with one of their largest partners (pretty sure they’re referring to Amazon).
Good call on the relationship being the key to the drop, but it’s Uber. They’re going to do more things in house. They were 17% of TWLO’s revenue last year, and only 12% in Q1. They’ll be less going forward.
However, the overall active customer trend looks really good:
M16: 28,648
J16: 30,780 (up 7.4% sequentially)
S16: 34,457 (up 11.9% seq)
D16: 36,606 (up 6.2% seq)
M17: 40,696 (up 11.1% seq)
So it re-accelerated this quarter. Here are some financial highlights for the quarter:
Revenue: 87.4M (Up 47%, a$4M beat)
EPS: -0.04 (a 0.02 beat)
Dollar-Based Net Expansion Rate: 141%
June Revenue Outlook: 86.5M (midpoint) – Yahoo says 87.81M was expected, so 34% instead of 36%
YTD Revenue Outlook: 359M (midpoint) – Yahoo says 370M was expected, so 30% instead of 33%
To me, these results look great. Even with the Uber news, they’re only guiding a couple percent lower, and they’ll beat it anyway!
Is Uber worth 30%? I don’t think so, but the market does. Opportunity?
Bear
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Is Uber worth 30%? I don’t think so, but the market does. Opportunity?
Bear, I would push back a little on that statement. While I do not know enough about the company or the quarter’s results to say if the AH drop is justified or not, I would counter that the drop is not just because its relationship with Uber is being significantly lessened. I would say that it is because Twilio’s relationship can be so easily lessened. If Uber can do it this quarter, who’s to say WhatsApp or Amazon cannot do it next quarter?
In other words, I believe the drop is because Twilio’s moat is so insignificant that a company can suddenly give its business to a competitor. This is especially true because the vast majority of Twilio’s business only comes from a few large customers. If one of these abandons ship next, the stock could go much, much lower still. If the service Twilio offers is just a commodity it is in real trouble here.
None of this is to say that what Twilio does is a commodity, but it should be a huge concern right now that a large customer just switched a large portion of its business to a competitor at the drop of a hat.
Just my quick take. I could very well be wrong.
Matt
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx
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http://discussion.fool.com/twlo-rip-or-not-rip-32696575.aspx
Simple as that. This eats out Twilio’s heart, its core, its very value proposition.
Tinker
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Precisely.
I won’t catch this falling knife, but may hold. If Twilio is a great business, it will recover eventually with innovation and better value to customers, the market is large enough for them to grow. Remember how many times other great business dropped by 30% and fully recover. Now, it all depends on if the management can respond, at lease, I still see this business has purpose and opportunity. I hope management can keep building their business to greater moat.
I sold 1/3 of my position this morning wanting to lock in the profit that I had before earnings today. Of course thankful that I did.
I’ll be down over 20% now in the remaining shares if the afterhours drop holds true.
I’m putting in a limit order tomorrow a few points higher then the open to get completely out of this company.
I agree that this type of small cap is in too vulnerable a position to feel comfortable holding onto. If it’s so easy to do without their service and take it inhouse, why won’t every large company just do the same.
Chris
Matt,
If Uber can do it this quarter, who’s to say WhatsApp or Amazon cannot do it next quarter?
Ok, maybe I oversimplified the picture. When half of Twilio’s revenue was from just a handful of customers, I agree, a poor moat was a really big problem for Twilio. These days, I’m not sure that’s the case. I believe Jeff said on the call that their 3rd largest customer only accounts for 2% of revenue. So WhatsApp is the only other customer of potentially boat-rocking significance. Twilio’s other 40,000 customers spend, on average, less than $2,000 each quarter. In this I feel that Twilio is similar to Shopify: sure, others can provide websites and services and such, but Shopify is becoming the leader for ecommerce websites. Twilio is exactly like that.
If you’re Twilio’s average customer, or Shopify’s, your bill isn’t large enough that you think twice about it – you couldn’t afford to do it cheaper than they do, and they make your life easier, so you’re more than happy to let them. If like Uber, your bill is tens of millions of dollars each year, there’s more incentive to look at your options.
But Unless Uber decides to try to offer a service that competes with Twilio, I don’t see this as a long term problem. Twilio seems to realize that they’re not about getting huge institutional customers. They’re about the little guy, and they just brought 4,000 more of them into the fold in 3 months.
Thoughts?
Bear
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Thoughts?
Bear, truly and honestly, I do not know enough to really comment. I have lightly studied the company because I was interested but could never understand if it was offering a truly disruptive product or merely the first to offer a commodity service. So I stayed away. But I do lean towards the drop being more than just the loss of Uber and on what the market now - rightly or wrongly - thinks of Twilio’s true moat.
My gut tells me Tinker is closer to being right than not though (but my instincts have been wrong plenty of times before too): http://discussion.fool.com/twlo-rip-or-not-rip-32696575.aspx
Matt
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx
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I hope management can keep building their business to greater moat.
I think that the point of this news is that the moat is only so deep. For a smaller company, buying the expertise in a specialized area like communications is typically a wise move because they don’t have that expertise in house and it is a very difficult area. But, for a larger company, it can make sense to develop the in house expertise and then one doesn’t need the outside vendor any more. If Uber is successful in their transition, don’t be surprised if it gives ideas to other large customers.
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“Twilio seems to realize that they’re not about getting huge institutional customers. They’re about the little guy, and they just brought 4,000 more of them into the fold in 3 months.”
I’m with you Bear. The fact that they keep adding customers is the key to me. Probably an overreaction by the market but that’s nothing new. I’m holding my shares but not adding at this point. Kudos to Saul for another impeccably timed sell.
MC
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I trimmed 50% around $31 a few weeks ago Just listened to conference call and got some clarity on Uber situation. Actually feel better after that, the shoe finally dropped. Now they only have 1 larger customer Whatsapp at 5% revenue. I think they will transition to service smaller customers just fine. The market is huge, and I don’t expect Uber situation happening for all larger customers. Also, Uber moved to dual sources which is quite common in business world, so they remain customer just at smaller scale. Other than Uber, their overall business momentum is not slowing down. I think at this time, I am comfortable to hold my share for a quarter or two and reevaluate after that.
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Just sold half my remaining shares at a 8% loss at 25.25. Have a limit order to sell the remaining shares at break even at 27.
Why I’m selling.
The market had this one right. As most tech companies sell near or at all time highs, TWLO was closer to its 52 week low, and now back down hitting its 52 week low. This at a time when the market leader list is more like a nifty 50 list. I only hold 8 positions, now minus one.
TWLO was a position I only started recently and now feel it’s not worth building.
My core holdings just keep moving up. FB, AMZN, AAPL, NFLX, SHOP, PAC keep moving in the right direction. No need to hold a small cap with nothing proprietary and moving in the wrong direction.
Chris
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By the way, Bert has had a lot of stocks he didn’t like enough to recommend, but the only one I remember him ever recommend shorting was Twilio. In the disclosure he even said that he might initiate a short himself. (Of course, that was last August, when it was over $50, but still…).
Saul
FWIW I have chosen to double the size of my small holding in Twilio as I choose to view the drop as an appealing price point on the basis that there are c.40,000 other customers (and growing) as well as the increased possibility of TWLO now being an acquisition target
Wish me luck!
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I wish you luck. However, I first entered TWLO in early March right after a precipitous drop, thinking exactly what you are. Come to think of it, this is not the first position I entered after a major drop, thinking exactly that. I don’t think I have ever shown a profit in any of them (more likely, just endured more massive drops). After all that thinking, I think I’ve just discovered a new rule for NOT investing in a stock. I think I like learning easy lessons better than hard ones.
They call me,
MrTBS
Exited TWLO this afternoon at a significant loss.
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I doubt it will be acquired. Uber spend at Twilio run rate $10M/qtr and $40M/year, it can develop all in house in such a short order - a few months at most, so there is really no moat of Twilio business, let alone any company will be willing to pay billions to acquire. just my thought.
It isn’t that there is no moat … just that the moat is limited. Communication software is very difficult stuff requiring specialized expertise. So, for a smaller company, it makes a lot of sense to outsource that requirement. At some point, if one is doing enough volume, i.e., spending enough, then it can make sense to acquire the engineers and do it in house because one will save money in time. Although, as previously noted, one can just decide this is a cost of doing business and keep one’s internal team trim based on the communications not being a part of the company’s core expertise.
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Come to think of it, this is not the first position I entered after a major drop, thinking exactly that. I don’t think I have ever shown a profit in any of them (more likely, just endured more massive drops). After all that thinking, I think I’ve just discovered a new rule for NOT investing in a stock. I think I like learning easy lessons better than hard ones.
I haven’t entered after a major drop. But I have multiplied my positions many fold that I was already in after major drops that I have deemed to be unrealistic on at least 3 different stocks that turned out to be major winners. When the blood is running down the streets it can be the best time to buy.
It is very easy to say—BUT IT IS VERY HARD TO DO-- If you can handle those opportunities properly it can create lifetime huge wealth builders.
b&w
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