TWLO - thoughts on slide?

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Curious if anyone here still following TWLO?
I noticed it is sliding to 52-wk lows, but seemed to have decent ER recently.

Appears they did $2.8b in 2021.
From what I can tell, they only forecasted for Q1 vs full year 2022, and wondering if there was a delayed drag to that?

Getting down to June 2019 stock price levels, although market cap much higher now due to SBC dilution, I believe.

Most analysts reacted positively too:
https://finance.yahoo.com/news/twilio-shares-pop-analysts-co…

While not hyper-growth, I feel like this board limits itself somewhat if all sub-50% growers (or whatever line you choose to mark “hyper-growth”) are automatically eliminated.

I wonder if TWLO is slightly similar to NET in that you can expect solid growth to continue for years to come. Organic growth around 40%, but keep in mind scale and size of current revenue.

I am not making a pitch for TWLO. I am just not sure why it is sliding as much as it is.

Dreamer

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Beatdown does seem excessive. Maybe hurt by Segment CEO, Peter Reinhardt and respected COO, George Hu leaving? It’s also very acquisitive, says it is open to more acquisitions. Lots of cultures to mesh. 64% off 52-week high. Ouch.

This article says they are guiding for “30% or better” organic next three years.

Twilio Stock Jumps Nearly 20%. It’s Earnings Were That Good.
https://apple.news/Ajrq3aejkT6KeeQWBZrVjqA

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I believe companies that are not cash flow positive are going down more on down days. It’s just the environment we’re in currently. As a long-term holder, I wouldn’t worry about it.

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First, customer growth was only 2.4% sequentially, this reinforced Twilio’s recent trend of slowdown. Second, this last Q4 was the 7th consecutive quarter that gross margin was down sequentially. Twilio has a long way to go to prove that its business model can really be profitable.

Cheers,
Luffy

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Curious if anyone here still following TWLO?..

I wonder if TWLO is slightly similar to NET in that you can expect solid growth to continue for years to come…

I am not making a pitch for TWLO. I am just not sure why it is sliding as much as it is.

I’ve watched it enough to at least fathom a guess. When TWLO was at a $1B run rate, 60%+ organic growth, high-50’s gross margins and a 145%+ NRR with close to break even cash flows and profits, the market was intrigued. Now that it’s at a $3.25B run rate, under 40% organic growth, low 50’s margins and a 131% NRR while still bouncing around break even at best, the market is less willing to give it the benefit of the doubt. It also makes sense to me the market would value TWLO’s < 40% and shrinking slightly each quarter less than NET’s 50%+ and climbing slightly at a smaller scale (not stumping for either, just pointing out a difference).

While cash flows and profits don’t always have to be positive, they do need to trend in a way that suggests building leverage and eventual bottom line success. TWLO simply hasn’t done that in a reasonable amount of time in my opinion. At some point you can only push out the future so far. That’s why I ultimately exited both times I owned it.

Of course, that and two bits will get you a cup of coffee (assuming you can find a place that sells coffee for only two bits).

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TWLO posted an acceleration from 11% QoQ to 14% QoQ but for the rest:

Guidance was +3% seq vs +7% seq after Q3. YoY was 34% organic vs 38% which is fine because they have guided 30+% organic for years to come and they did so months ago. The gross margin is down from, 49 to 47%.

Then Segment revenue only grew 10% seq. The thesis is that TWLO is to become category crusher marketing platform. The reasons to be interested in that thesis IMO are partly related to their first party data access, partly their past success/CEO. But for the small gear wheel of 57.4 mln to really get the big wheel of total revenues moving, it has to spin faster than 10% seq.

I sold DOCS and ZI and though I will add a little more back to NET, I have enough for a full position. So I looked at SNOW and revisited TWLO, which I had sold in December for the tax loss (no idea at all it would slide another 100/share!) just to offset gains). I intended to return but after ranking 30 companies across 9 metrics, TWLO came up at 23 overall and 22 on growth so that put breaks on my plan.

I keep watching it, but right now SNOW is the only candidate for the ZI/DOCS money (or I will just spread it around my existing positions).

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I’m not sure if the Google news on updating their privacy policies on mobile/Android has direct impact on Segment - but that’s my only logical guess here, Twilio went down immediately after the news broke out.

I’ve been in and out of this stock and frankly considering how many good companies are trading at discount and have better growth and profitability metrics - it just doesn’t really make sense to invest in it and hope that they turn profitable in 2023. The earning call sounded positive, and initial market reaction was good, but the bump faded by the end of next trading day.

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Here are my quick overview of what happens this Q.

  1. customer net add 6k QoQ, second lowest since 2019.
  2. ‘Organic growth’ slowed to 34.3%. They guide 30%+ for next several years.
  3. Still show limited sigh of operating/financial leverage.
  4. Product mix.

Messaging: 52% (2018) / 43% (2019) / 45% (20Q2) / 50% (2021).
App Services: 11% (2018) / 11% (2019) / 12% (20Q2) / 12% (2021).

App services do grow faster (66%) vs. Messaging (49%) so it is reasonable to expect TWLO improve their gross margin. But this arguments also holds back to three years ago, and look at product mix, limited improvement.

  1. Segment grow like 9% QoQ, underperforming Twilio as a whole (13.9% QoQ)

Personally I didn’t find anything exciting except a relatively cheap valuation. ‘Organic growth’ at 30% is cool against most business in the world, but in cloud computing world it suggest Twilio might be grow slower than major clouds. If I want some ‘value investment’ in Technology sector, I just go with major clouds instead of mediocre SaaS.

I use ‘Organic growth’ as I really don’t like how they calculate it.

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When I look at TWLO’s Q4 earnings report and step back to look at trends across multiple quarters, I see a lot more red on the map denoting slowdowns, decreases, and lumpiness in several key business metrics.

Revenue growth - Q4YOY revenue (54%) handily beat guidance by 13%. Revenue of $843M beat guidance by almost 10%. Sequential QOQ revenue (14%) also beat guidance by 10%. By themselves, these numbers seem impressive. However, they have beat their guidance by 10% or more for 6 quarters now - a little guidance sandbagging by the team? They guided for $865M for Q1 2022 - which will be 47% YOY and 3% sequentially QOQ. Q1 is typically their weakest quarter in the year. Organic growth has also been on the decline for 4 quarters now. The marquee acquisition, Segment, contributed only 7% to Q4 revenues. The sales teams were combined in Jan 2022 - it will be at least 2 quarters before we see meaningful growth from Segment.

Profitability - Gross margins have been slowing down for 6 quarters now. They need to significantly grow their higher margin businesses like application services, Segment, Flex etc. However I don’t see this happening for several quarters e.g. app services is only 12% share of annual revenues. Net P&L has also been decreasing for 7 quarters now. They have yet to declare when they will be truly profitable. They guided to being non-GAAP operating profitable by end of 2022…whatever that means & anyways, not fast enough, imo.

Cashflow - Operating cashflow is in the negative for two quarters and anemic overall. Free cash flow showing similar meh performance. I don’t want meh in a rising rate environment.

Market share - Tota customers grew 16% YOY and 2% sequentially QOQ. International revenue grew to 34%. Good progress on this front. International growth will put further pressure on profitability due to lower selling price points.

Debt - remains steady at $986M along with over $5.36B cash on the balance sheet.

Products - They still have a lot of work ahead - enhancing the Twilio CDP platform and integrating it with the sister products like Segment, Flex, Frontline, Engage etc. The competition is not waiting. Currently, TWLO is largely like a telco….handling messages between customers and their clients, charging a margin on top of fixed costs.

My conviction in TWLO has decreased with this Q4 2021 earnings report. I re-evaluated the company using my scoring method and their score remains in the mediocre range. They still have to prove that they can successfully pivot to higher margin businesses like Segment. This story will take a few quarters to play out. My patience has run out.

Beachman (twitter.com/Iwannabeontheb2)

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