Twilio- Category Crusher & Juggernaut

In my End of the Month Report I referred to Twilio as a Category Crusher and a Juggernaut, and a One-of-a-Kind Company. It was over a 17% position. Well Twilio just showed again that it is a pure phenomenon of nature.

Its revenue growth accelerated from 41% a year ago to 68% this quarter. The last five quarters’ growth rates have been:
41%
41%
48%
54%
68% !!!

Now 41% growth is phenomenal for most companies but this was 68% !!! And accelerating.

Now look at dollar based net retention rate: 122% a year ago. That was great. But now it’s 145%. That’s greater. The last five quarters have been:

122%
118%
132%
137%
145%

And to think they actually sold off at one point in October to $63! Because they were acquiring a profitable company. (Not included in these results, by the way!)

Hope you are enjoying the ride!

Saul

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I dont have the correct adjectives for Twilio anymore! :slight_smile:

I’m listening to the call now, its quite euphoric. Lots and lots of questions on Flex, Twilio Pay, and Autopilot. They just have so many new products/features, it’s going to be a challenge following them all. All of this without Sendgrid yet.

And to think they actually sold off at one point in October to $63! Because they were acquiring a profitable company.

Not sure we will ever see $63 again!

Best,
Matt

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Its revenue growth accelerated from 41% a year ago to 68% this quarter. The last five quarters’ growth rates have been:
41%
41%
48%
54%
68% !!!

I think we kind of expected a result like this. The last numbers are with Uber included. I think this quarter that was just reported was the one most crucial to moving back to an apples to apples comparison.

And wasn’t the Net Dollar Retention Rate ex-Uber also about 145% last quarter…just continuing on from last quarter…

Chris

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Uber Smuber

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And to think they actually sold off at one point in October to $63! Because they were acquiring a profitable company. (Not included in these results, by the way!)

Hope you are enjoying the ride!

Saul

Saul: Comments from a constant reader, seldom poster: Some things on my very long list of stuff I simply don’t understand.

Twilio is ~10 years old. (IPO only 28 months ago.) They are (increasingly) losing more money year over year.

Their stock price performance over the past 24 months has been dogged; below venerable AMZN; far, far below the likes of NVDA, PAYC, etal…

Their ISS Governance QualityScore as of November 1, 2018 is 10 (10 indicates highest governance risk)

Are these data wrong? (For me, especially troubling is the losing money thing, after ten years actually in biz.)

Forgive me, but I seriously would like to understand why this so highly touted company can seem to have so many negative factors.

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Are these data wrong? (For me, especially troubling is the losing money thing, after ten years actually in biz.)

BreBear, are you looking at GAAP or non-GAAP?

Hi BrerBear,

First of all, as someone here just mentioned, you have to look at adjusted net which, far from being more every year is roughly breakeven.

Second, on the right panel, take a look at two posts linked there:

Why My Investing Criteria Have Changed
Why it Really is Different (SaaS/subscrption software)

Best,

Saul

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Saul,

Quick question - I know I am a bit late in the game to add this to my portfolio, but is it still a good buy at this price when it just soared to $81 after the earnings?

I still do not know how much cash Twilio will be able to print when it matures, perhaps quite a lot. However, Twilio is out growing its nearest competitor in growth rate by 3x, while being far larger to begin with.

That is the definition of a category killer.

Tinker

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They are (increasingly) losing more money year over year.

They are not losing money. Their cash-flow is positive. They are paying their employees in stock and stock options. According the GAAP rules this has to be included in the expenses but it’s not costing the company any money, it’s costing the shareholders their share of the company. If you adjust for that, they are making money.

That said, they are giving out a lot of stock based compensation. $65 mil. in 9 months. It’s the same amount Shopify is giving out but Shopify is 2.5 times larger. This is the principle reason why the stock is only 10% up on such stellar results - given the stock comp your shares have shrunk by 10% in the last 9 months.

Their stock price performance over the past 24 months has been dogged; below venerable AMZN; far, far below the likes of NVDA, PAYC, etal…

I don’t know how you can look at the chart and say the last 24 months have been dogged. They more than doubled since Nov 2016. And it’s not below AMZN either - it’s pretty much the same. NVDA did 20$ better in that time frame. We don’t care. The past is gone, we care what the next 2 years will be.

Their ISS Governance QualityScore as of November 1, 2018 is 10 (10 indicates highest governance risk)

Why should we care? Are there any concrete indications that TWLO is going to lose momentum?

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… is it still a good buy at this price when it just soared to $81 after the earnings?

It doesn’t matter what happened to date; what matters is what YOU think will happen in the future, and no one can answer that question but you. Most of us are investing for years of strong growth, not 10% “pops” although few are against pops either. :slight_smile:

(Personally I would wait a few days for things to shake out, but please: Put very little weight on what I would do.)

TWLO is on my list to add shares, so I’m in the same boat, except that I have a 12% position and was aiming for 17%. I got over feeling like I missed out on any stock, a long time ago. There are so many great companies to own that we never need to feel left out. Besides, Mr. Market often retraces his jumps. One time up, another down, rinse & repeat until your “buy” price comes up again.

On second thought … “Damn, I missed out!” :slight_smile:

Dan
long TWLO

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Great result again.

I thought I would look back over the past years. Sales and marketing expenditure is running at about 25% of revenue, which is why TWLO is losing money on paper.

However, with SAAS type companies, sales and marketing expenditure is more akin to capital expenditure, because the revenue gained is very sticky, as it is hard for customers to switch (in good businesses anyway), particularly if your supplier is continuously innovating / improving.

It would be great to know how long customers are retained on average, so we can get an idea of lifetime customer value. Anyway, what I have looked at is what return TWLO gets from its S & M spend. I simply did this by the following equation: S & M spend / (revenue growth x gross margin). The results are:

2014: 1.6 years (62% return)
2015: 1.4 years (88% return)
2016: 1.1 years(95% return)
2017: 1.5 years(66% return)

This quarter, it is running at around 1.3 years (80% return). This is an incredible return on S & M expenses. If TWLO continues to increase S & M expenditure and maintain its S & M returns, these high revenue growth rates can continue. I think the return on S & M expenditure is an important measure to keep an eye on.

To me, it looks like TWLO is showing it is achieving great returns on marketing spend, and is running above 60% over its recent history, if it were to fall below this, I would start to be concerned. For now, it gives me greater confidence in the TWLO thesis.

I would appreciate comments on my thought process above - Do you see a way of refining this review of S & M spend?

Regards,

Sean

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Thanks Dan for sharing your insight!

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Sean,

Interesting idea. You are certainly right that S&M investment brings much better returns in subscription based models. However, I wouldn’t put the returns you posted squarely on the shoulders of the S&M department.

The customer retention rate was 145%. This means that most of that 68% growth came from existing customers and I don’t think it comes from volume only. You can only achieve these numbers if you can upsell the customers for a better service or for other products and for that you need R&D just as much as S&M. So your ROI calculation should be adjusted for that. Unfortunately it’s hard to assess how much from R&D contributed to the top line growth…

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They are paying their employees in stock and stock options.
Do you mean zero salary? As in entirely in stock and options?

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I’ve been patiently lurking and waiting as you guys do all the much appreciated heavy lifting.

Accounting and number crunching not my thing. :wink:

This correction in the market finally gave me the opportunity to get into most of the “Saul” stocks,
TWLO being one of them. All in my Contributory tax free account.

In TWLO at 67.

Thumbs way up to Saul, Paul and the rest of this gang.

On my end I’ve been able to have conversations with one of the top VCs investing in cloud in Silicon Valley lately as my brother cycles with him and they have become good friends. One needs all the tools in the tool belt that one can carry to be a well rounded investor.

Chris

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kapil99,
not Saul here, but to answer your question, absolutely much too late to add to your portfolio. It’s all downhill hill from here. Twilio has hit it’s zenith and will steadily decline from this point forward until they are out of business. It’s just a flash-in-the-pan company with absolutely nothing of value to offer to any of their customers. The sudden outsize uptick in the stock price is based on vaporware.

Or maybe not . . .

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“The customer retention rate was 145%. This means that most of that 68% growth came from existing customers and I don’t think it comes from volume only.”

I thought the CEO has said that TWLO grows with it’s customers. The model as I understand it; is usage based so the larger and more successful TWLO’s customers become, usage increases and TWLO benefits with more volume based revenues. Of course up selling adds to that.

Rob

Kapil99,
I want to apologize for my sarcasm and try to give you a real answer based on what I’ve learned from Saul and other really intelligent investors with many years of experience who follow this board.

The question you asked is essentially a question based on a price anchor. The underlying “logic” is something like questioning the potential for a stock to rise any further after a rather spectacular run-up. It is completely based on stock price rather than the underlying performance of the company.

Look at it this way, would you have asked the same question if the stock had plummeted 30%? What question might you have about the potential for this company’s stock performance if you had no stock price history whatsoever? What if every day was a new day and there was no memory of yesterday’s stock price or last year’s?

If you’ve read any of Saul’s posts can you point to a single one where he alluded to the stock price as a significant factor in a purchase decision. Why would it be different for Twilio today than it was yesterday? What has materially changed about the company?

Pragmatically, there may be some profit taking and the stock may go down a few points over the next few trading days, but Saul has advised time and time again if you buy great companies with stellar financial performance and a more or less niche monopoly you will not even remember if you bought the stock for a few dollars more than it was a few days after you bought it. Then again, it may continue to rise and you will still be on the sidelines waiting for that few dollar cheaper entry point.

You can’t time the market and you most certainly can’t time the performance of a given company’s stock. If you think Twilio is a really good investment based on their performance and their products and their market penetration . . . basically, based on the business. then do what Saul does, buy some. Maybe not a full position at first, but get in. Don’t worry about the stock price.

We’re growth investors here and we make money on appreciation of the stock. But the stock price is more like validation of the purchase decision, not a deciding factor in and of itself. If we were value investors, the story would be different and the stock price would be vitally important. So you need to make up your mind which game you are playing and which rulebook you are going to follow.

You might also consider just why Twilio shot up the way they did. Maybe it has something to do with the fact that they are the premier communications company. They’ve just introduced a slew of new products and they’ve merged with the leading commercial email provider so they offer telephony, messaging and email services. Who’s their competition? Really there is none, or at least none that is significant.

Will the stock price go down tomorrow? Maybe. Will the stock price be higher a year from now? Almost certainly.

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“It’s just a flash-in-the-pan company with absolutely nothing of value to offer to any of their customers. The sudden outsize uptick in the stock price is based on vaporware.”

You just brought me back to 1999-2000!

pocketfuzz.com
sculpturesmadefromwornoutshoes.com
perishablegroceriesbymail.com
usedteabags.com

As long as they got lots of clicks or views or at least something countable, the share prices were bouyant. Until they weren’t.

[Brittlerock, based on your previous comments, I knew you were kidding, though. And I trust your cred as an IT professional. Unless you start buying shares of IBM. :)]