On the surface, I like it. Though, I’m surprised Twilio doesn’t have this capability already, or build it on their own.
Maybe there’s some synergies w/customer base and/or IP?
https://www.cnbc.com/2018/10/15/twilio-to-acquire-sendgrid-i…
5 Likes
It is cute for the news to say “hey - they bought a company that sends bulk emails for $2b…wtf.” when the strategic reasoning is a bit more sound and laid out by CEO in that same article:
The resulting company would offer developers a single, best-in-class platform to manage all of their important communication channels – voice, messaging, video, and now email as well. Together, the companies currently drive more than half a trillion customer interactions annualized*, and growing rapidly.
“Increasingly, our customers are asking us to solve all of their strategic communications challenges - regardless of channel. Email is a vital communications channel for companies around the world, and so it was important to us to include this capability in our platform,” said Jeff Lawson, Twilio’s co-founder and chief executive officer.
18 Likes
From SendGrids website:
“Together, we power more than 600 billion annual interactions every year for more than 100,000 customers.”
“We’ve been humbled to serve our more than 74,000 customers…”
So lot’s of customers come with this deal. Maybe a sign Twilio plans to explore the SMB market even more?
3 Likes
Check this out…imay buy on the dip if twlo opens lower. They are alreadymy #2 stock by allocation though:
https://www.google.com/amp/s/www.marketwatch.com/amp/story/g…
The companies will report third-quarter results on Nov. 6, but they said Monday they both have exceeded their guidances provided earlier in the year.
Also mentioned here plus replay of todays conf call on this deal here:
https://www.businesswire.com/news/home/20181015005920/en/Twi…
Q3 2018 Results and Guidance
Both companies will report their respective financial results for the three months ended September 30, 2018 on November 6, 2018. However, both Twilio and SendGrid are announcing that they have exceeded the guidance provided on Aug. 6th and July 31st, respectively, for their third fiscal quarters.
Guidance for the combined company will be provided after the proposed transaction has closed.
Conference Call Information
Twilio will host a conference call today, October 15, 2018, to discuss the SendGrid acquisition, at 2:30 p.m. Pacific Time, 5:30 p.m. Eastern Time. A live webcast of the conference call, as well as a replay of the call, will be available at https://investors.Twilio.com. The conference call can also be accessed by dialing (844) 453-4207, or +1 (647) 253-8638 (outside the U.S. and Canada). The conference ID is 6976357. Following the completion of the call through 11:59 p.m. Eastern Time on Oct. 22, 2018, a replay will be available by dialing (800) 585-8367 or +1 (416) 621-4642 (outside the U.S. and Canada) and entering passcode 6976357.
15 Likes
both Twilio and SendGrid are announcing that they have exceeded the guidance provided on Aug. 6th and July 31st, respectively, for their third fiscal quarters.
Great catch, Dreamer, I may buy more TWLO tomorrow even if it doesn’t open lower, as I don’t have as much of it as I would like, and this definitely takes some uncertainty out of the results to be reported!
1 Like
I like this acquisition a lot. Seems to give Twilio a missing piece to their solution and probably some great employees and new customers.
Link to SendGrid Sept 2018 investor presentation.
https://investors.sendgrid.com/events-and-presentations/pres…
2 Likes
I may buy more TWLO tomorrow even if it doesn’t open lower
if you are confident that the SendGrid acquisition will close, you can obtain TWLO cheaper by buying Sendgrid shares tomorrow than by buying TWLO outright (assuming that both prices stay around where they were at the end of the extended session today).
By my math, the equivalent price by buying SendGrid
$35.1 / share
divided by .485 shares of TWLO you’ll receive when the acquisition closes
comes to $72.37 equivalent per share for SEND shares that will turn into TWLO, vs paying $73.50 directly for TWLO
Keep in mind the SEND shares won’t become TWLO shares until sometime in the first half of 2019, and if the acquisition falls through, you’re stuck with the SEND shares which most likely will fall if that happens.
So not a huge discount going this route, but something to consider depending where the shares open tomorrow if you’re a buyer and think this acquisition is likely to close
-mekong
2 Likes
Is SEND worth 25% of TWLO?
$2B is more than 25% of TWLOs $7.7B market cap.
I’m trying to determine why TWLO didn’t just build this feature in house?
My gut tells me that this must’ve been cheaper as it allows them to both develop and acquire 74,000 customers than can be potentially expanded upon.
Does SEND have a new sector that TWLO was trying to exploit and this is the beachhead?
Did it buy off any future market competition for TWLO?
I agree that the merger makes sense to add the last piece, but why such a large spend versus developing.
That’s my research for today.
2 Likes
Here’s TWLO’s presentation on the acquisition:
https://s21.q4cdn.com/247074597/files/doc_presentations/2018…
The rationale given is that TWLO wants to add E-Mail to their communication platform - seems reasonable.
TWLO payed $2 Billion for a company with $130 mil. earnings growing at ~30% per year. Seems a decent price.
0.485 shares of Twilio Class A common stock for each share of SendGrid common stock
TWLO + SEND projections
TWLO TWLO+SEND
Revenue $591 $734
Gr. Margin 55% 59%
Op. Income $9 $18
6 Likes
Raw notes below, but I think the opportunity lies in being able to help companies move from a seamless email communications and marketing product to a communications and marketing product across the TWLO platform.
Makes me wonder how it plays with TWLOs vision
Those more familiar will have better insights. These are quick and dirty from reviewing last Q.
Just a Fool
Customer count growing 35% YOY
74,000 total customers
Revenue 32% YOY ($36M for the Q)
1.5 billion emails per day
Highlights a self serve approach to acquiring customers based on internet based adoption.
Essentially help large companies with their email campaigns, expanding a recent offering specifically to “marketing” — perhaps this is a synergy with TWLO?
Gross margin is 75%
Positive adjusted net income (removes stock compensation and got to $2.8M) (and cash flow ($3.9M last quarter)
Expecting full revenues to be $144M for full year (28% growth) and net income to be 7-9M
1 Like
0.485 shares of Twilio Class A common stock for each share of SendGrid common stock
Want to highlight this because this is probably causing the TWLO drop today. That’s a lot of dilution. The MC for TWLO + SEND should be $8B, TWLO values SEND at $2B so a SEND share should be 0.25 of TWLO+SEND or 0.33 with mark up. Instead they are getting half the company!
I would not call the today’s dip a bargain by a stretch. I expect it to fall further.
2 Likes
I think you assume they have the same number of shares. It’s apparently wrong.
4 Likes
Yeah, my bad it’s Apple’s to oranges…
2 Likes
0.485 shares of Twilio Class A common stock for each share of SendGrid common stock
Want to highlight this because this is probably causing the TWLO drop today. That’s a lot of dilution. The MC for TWLO + SEND should be $8B, TWLO values SEND at $2B so a SEND share should be 0.25 of TWLO+SEND or 0.33 with mark up. Instead they are getting half the company!
I would not call the today’s dip a bargain by a stretch. I expect it to fall further.
Not sure that this is correct. Just pulled some numbers from Yahoo and Zacks…
TWLO MC 6.549B / 97.45M shares outstanding for a share price of 67.21
SEND MC 1.48B / 6.39M shares outstanding fort a share price of 31.99
.485 TWLO share is = $32.59 or roughly the current price per share of SEND
A SEND share is not .25 of a TWLO share because there are different number of shares outstanding. Roughly 2.1 times more TWLO shares than SEND.
Please correct me if I am wrong.
3 Likes
posted on NPI, wanted to share the conf call link here, too, along with a couple notes:
Conf call notes on the acquisition…with both CEOs:
https://seekingalpha.com/article/4211863-twilio-twlo-ceo-jef……
If you annualize the Q2 2018 Non-GAAP results for both companies, you get revenue of $734 million, gross margin of 59%, and an operating profit of $18 million.
Comment from SendGrid CEO on why sell now and why in stock (vs cash):
"Sameer Dholakia
Yeah. Thanks, Mark. The decision for us and there’s a very important part of this, which is it’s 100% stock transaction and that was critical to us. We were not looking to end the value creation. We’re looking – we believe that deeply that this pro forma company is going to create a lot of shareholder value in the future and as owners in the company of this new pro forma company, we’re going to be able to enjoy in that or all of our existing shareholders. So that was a big part of the logic in doing the transaction."
My comment: SendGrid, from all appearances, was healthy, growing well, and had a reasonable P/S, and a large customer base (with minimal overlap with Twilio’s customer base, per a 3rd party they asked to review it). So they likely would have seen stock appreciation over the next 1-2-4-6 years. This shows, to me, a pretty high degree of confidence that SendGrid’s mgmt felt they would benefit more, stock-wise, by being a part of a larger Twilio.
To the question of “hey - why not just build your own thingy for $2B?”
The answer would seem to be you get access to about 70,000 new customers and have 100,000 total customers to cross-sell to now. Also, like with NVIDIA GPU and the constant threat that Google or some titan will just create a better widget, you have to realize that years and years of R&D have gone into the completed products at this point. So Twilio has been looking at SendGrid’s market for a while, and vice versa, but neither could dedicate the time or money to build a better widget than the other. Like with NVIDIA, even if Google or Huawei comes out with something comparable to NVIDIA’s GPU, you have to remember NVIDIA is also already working on their next thing. So the barrier to entry is very high. Those are my words, here is from the CEO of SendGrid:
"Sameer Dholakia
[indiscernible] the complexity in building that e-mail infrastructure at scale to be able to deliver 45 billion emails per month to ISPs with various sophisticated machine learning systems that sit at the edge of their networks to ensure that a customer’s email makes it into the inbox is not trivial and that’s taken us nearly a decade to build out, to get the coverage and the long tail of these inbox service providers around the world and I think a huge part of why each of us respectively never went into the other market, we looked over at building a super network with hundreds of carriers globally around the world and that looked very difficult to do and I think the same is true on the other side."
Being in the IT industry selling to large enterprises, I really liked this exchange and CEO Jeff Lawson is spot on. The question is basically “hey - how do you expect to compete against Salesforce down the line…those are big-boy conversations with procurement and executives…developers aren’t the decision-makers there?” Here was Lawson’s reply, which I agree with completely:
"Nikolay Beliov
Yeah. I realize that Jeff, but like when you go and sell like a 3000 user call center deal or like millions of emails, competing with Salesforce in that target, it’s probably a new set of a buyer like head of marketing or like head of customer service rather than the developer kind of like pushing for that type of engagement with you guys.
Jeff Lawson
Yeah. Well, what you’ve seen for example with our engagement cloud and with Twilio Flex is that the same developer motion gets the process started inside of a customer, as it has with core APIs and even our flex customers, generally speaking, the developers are the early advocates of using Twilio inside of the company.
Now, I agree with you that if it’s a multi thousand person contact center, the developer is not the one making the final decision absolutely, but to actually get the ball rolling, become that internal champion to socialize and champion the idea inside the company and then having our sales team come in and work with the developers and work with the rest of the people in the organization, the other stakeholders, that’s a powerful motion and I think you’re seeing that play out, not just at Twilio and SendGrid, but other sort of API developer type organizations like AWS as well, it’s a powerful motion and it’s – starts tactically, but it can become very strategic in these big purchases that companies are making, but it’s really powerful to have that developer begin to advocate and be pushing for the solution.
And by the way, it’s not just the advocacy of the developer. It’s the fact that you can take and prototype out the idea and should be able to show that off internally as a – on one side, we can kind of trust slide ware, but on the other side, we’ve got a working prototype that we can actually look at and feel and play with, put in front of some customers even before you make the decision, that’s powerful because that de-risks a decision for a company and I think that that motion, that developer first, that lower friction, easy to play with, easy to prototype, lower the barriers, that is the essence of that developer first go to market that we’ve seen be so successful in a variety of scenarios."
Dreamer
20 Likes
I like this acquisition, it looks like it is a perfect fit to add to TWLO’s business. TWLO was my largest position before today’s drop, but I am going to add a little here.
SendGrid is growing about 30% and cash flow positive. TWLO is paying a little over 15 on P/S basis.
It tells me that is what companies with the same attributes are worth right now.
Some of the companies we follow that are growing much faster don’t look expensive at this take out price. They should be worth more.
Jim
2 Likes
Interesting message board thread on Twilio’s acquisition of SendGrid:
Jimb05,
You stated:
"SendGrid is growing about 30% and cash flow positive. TWLO is paying a little over 15 on P/S basis.
It tells me that is what companies with the same attributes are worth right now.
Some of the companies we follow that are growing much faster don’t look expensive at this take out price. They should be worth more."
I had the same thought rolling through my head last night. So, does that mean that a company like TLND with a market cap of $1.9B, P/S of 10.8x and YoY revenue growth of 40% is undervalued by at least 50%? On the flip side, the market beat up on SHOP when they came in with 62% YoY growth, which indicated slowing from previous YoY figures. Their P/S is around 17x. If their next earnings report shows similar YoY growth (instead of further slowing), are we to believe they’re trading at a discount, too?
The challenge I’m having is this: the recent correction in our sector had me question the valuations of many stocks (are they too high). Now, the TWLO purchase of SEND now has me wondering if subscription-based SaaS stocks are actually cheap.
Not sure when I’m landing yet. Anyone else had the same conflicting opinions within a week of each other?
If TWLO wasn’t already 10% of my portfolio, I would’ve added more during yesterday morning’s dip.
-ElonFeeNix
Long TWLO
1 Like
SW: I am concerned about the price - did Twilio overpay, and if so, does it matter in the long run?
Typically you can’t take out a company for a 20% premium to their mkt cap. I think Twilio got a bargain.
EFN: So, does that mean that a company like TLND with a market cap of $1.9B, P/S of 10.8x and YoY revenue growth of 40% is undervalued by at least 50%? On the flip side, the market beat up on SHOP when they came in with 62% YoY growth, which indicated slowing from previous YoY figures. Their P/S is around 17x. If their next earnings report shows similar YoY growth (instead of further slowing), are we to believe they’re trading at a discount, too?
This is almost exactly my thinking about Talend. I do think they’re undervalued. I also think it’s easier (certainly doesn’t cost as much) to stomach a premium on a $2 billion company than a $15b or $30b company. I also think they’ll start growing at faster than 40% soon because of masked growth. https://discussion.fool.com/bear39s-talend-q1-thoughts-33142874…
Shopify was up 7.5% yesterday and everything depends on how they grow from here. If they can stay above 50% revenue growth for a couple more quarters, and also make some improvements on margins, they’re a great buy now.
Bear
6 Likes
I think what Sendgrid getting purchased for a 15 P/S multiple shows us, is a 15 P/S multiple is not outrageous or a bubble valuation for these types of companies, growing 30%+, showing an ability to generate cash.
Sendgrid is probably worth more to Twilio because of the synergy/product fit between the 2 companies.
A company is worth the cash flows it can produce in the future.
Which is a result of:
-
revenue growth
-
the % of the revenue they can convert to cash (FCF as a % of revenue)
Most of the Saas companies we follow are focusing on 1), which is smart, because the more revenue you have, the more cash flow you have in the future.
The danger is, what if the company grows revenue like crazy but can never produce any cash flow?
That is why I like to see improvement in the margins as they grow.
EFN: regarding Shop
After the last earnings report, I sold 1/2 my Shop shares. (I think quite a few others cut back or sold out of Shop also)
I did this because I have less confidence in 2) above. Shop grew revenue at 60%, still great but down from 72% the year before with no margin improvement. The revenue growth trend is very important to me. They are putting everything they have into growing revenue and it was a 12% drop.
So I see shop going a couple of ways:
-
as Bear just mentioned, they keep growing, above 50% would be great, and start to show they can improve margins and make cash flow. If this happens I will probably add back to Shop.
-
they keep growing Revenue, but never make any cash. The trend from the last quarter continues with slowing growth and no margin improvement.
Obviously, these are extreme examples and reality is probably in between.
I just think the probability of being closer to 2) is greater after the last quarter, so I sold 1/2.
If a company has revenue growth start to slow, if I don’t see margin improvement I am out.
Jim
10 Likes