Apr 2018 - Bert’s write-up
Twilio is one of those rare hyper-growth companies that is not quite valued in the stratosphere. The main reason for that is the confusion their headline numbers have produced as it decouples its fate from Uber That doesn’t mean that Twilio hasn’t reported healthy growth; just that the growth being reported has been noticeably compressed by the gradual deterioration of the contribution of those two customers.
Last quarter, which was the most difficult quarter in terms of the Uber impact, Twilio still reported growth far above what it had forecast (it had forecast 28% top-line growth and it achieved 41%).
In fact, Twilio is actually one of the fastest growing vendors in the IT space and expectations for its revenue growth over the next two years are far less than realistic. It provides infrastructure software for a wide range of customers. It is basically a tool set that facilitates the embedding of messaging as part of an application. Most new applications these days are going to include functionality for text and voice, at the least. Some will provide chat, and more and more applications will provide video and wireless connectivity.
Another set of apps is what Twilio calls its engagement cloud, which also includes a set of tools and API’s that developers use to build applications. Such tools include
Studio which a visual builder tool,
TaskRouter, which is a way of enhancing a call center,
Verify which allows a developer to build in identify verification,
Authy, another login security tool, and
Notify, which is a tool that developers can use to provide end-users with notifications across multiple channels.
Last month, the company announced Flex which is a programmable contact center platform. Flex is supposed to be a big deal and allows developers to add an omni-channel contact center to an app. It has almost universal appeal to companies that deal with masses of customers.
How large is the market for Flex? No one really knows because something like Flex has never before been offered. The market for all contact center software is in the range of $30 billion, and over time, it is highly likely that those applications will migrate to the cloud. When investors ask about the Twilio growth rate potential and try to plug in numbers, it is clear that other than understanding that the numbers are huge relative to the current size of this business, no one really has any real idea as to how large this company can become.
Twilio is a company built for developers. Developers find it far easier to use Twilio tools to build apps than starting from scratch. As communications becomes more central to the utility of new apps, the TAM this company can address is showing accelerating growth.
Twilio is part of our high growth portfolio and it has appreciated 58% since we added it back in December. With a growth rate of between 35%-40% one has a EV/S ratio of 6.4X and depending on the success of the newest products, that ratio could be further reduced. However, profitability and cash flow generation are probably still more than 18 months in the future.
Apr 2018 - Twilio Programmable Wireless now available: empowering millions of developers to deliver IoT experiences
It unleashes the creativity of millions of developers to deliver the IoT vision of billions of connected devices
It takes our developer-first approach that disrupted the communications industry and applies it to the Internet of Things
Innovators are using Twilio Programmable Wireless to unlock new markets and transform their industries
We announced today general availability of Twilio Programmable Wireless, a cellular communications platform that uses simple APIs to power a wide range of internet-connected solutions. By making cellular connectivity programmable, we empower developers to focus their time and energy on building innovative connected solutions while we handle the complexity of dealing with carrier business models.
Despite the hype surrounding the internet of things (IoT) over the last several years, IoT has been largely out of reach to developers because there has not been a developer-friendly connectivity provider. Twilio Programmable Wireless makes connectivity accessible to millions of developers via Twilio’s platform, empowering them to begin experimenting with IoT. We can’t wait to see what they build.
Connecting a device to the internet requires a subscriber identification module (SIM) that is standard in every mobile phone today. With Twilio Programmable Wireless, Twilio provides developers SIM cards that give them access to global connectivity in more than 120 countries and a developer-friendly, API-first platform that enables them to begin building IoT solutions.
For the world to realize the potential of billions of connected devices, it needs millions of developers to begin experimenting. Twilio Programmable Wireless helps to make that possible.
May 2018 – Mar quarter results
Earnings of -4 cents beats by 3 cents
Base Revenue of $117.5 million, up 46%, and 12% sequentially and up 61% excluding Uber
Dollar-Based Net Expansion Rate of 132%
• 54,000 Active Customers, up from 40,700 a year ago.
Saul: My take - They turned the corner on growth, Dollar-based Retention Rate, etc. Raised guidance a lot for the full year. This is a great stock to hold!
Conference Call
Base revenue was up 46% yoy, and up 61% excluding Uber.
Dollar based retention rate was 132%, but 145% without Uber.
The December quarter was the toughest comparison for Uber results, so this drag should lessen as we move pass this peak through 2018. In this quarter, WhatsApp came in at 7% and Uber at 4% of total revenue.
They seemed very excited about Flex which is for big call centers of 1000 or more seats.
Bert’s Take
In the case of Twilio, all one needs to know is that it smashed its prior targets for operational performance and raised forward guidance. The shares are trading up and are at prices not seen since just after the IPO in the middle of 2016.
We believe that the runway for Twilio is enormous and in its early innings and that it should be a part of any high growth portfolio.
For the 3rd time in a row, it achieved more than 60% revenue growth, excluding Uber.
It saw a reacceleration of its dollar based net retention rate excluding Uber to 145%.
It did generate a modest amount of free cash flow, although its turn to profitability and cash generation is just starting.
Its gross margins at 54% have remained at more or less consistent levels for the past few quarters. Its operating spend ratio declined modestly on a yoy basis to about 72.5%. It continues to spend heavily on R&D and is also accelerating S&M spend. Twilio is far more focused on growth opportunities than profitability, and with a net retention ratio of 145%, it should be.
Twilio is in the process of refining its go to market strategy to focus on call/contact centers and its Flex platform has that market as a primary target. I don’t want to seem too excited, but the call center market has a TAM in the billions and is ripe for disruption. Flex is not going to be a huge revenue producer for them this year, but it should start to build revenue momentum by the end of the year and through 2019.
It is one reason, amongst many, to think that the currently published First Call consensus for 2019 which calls for growth of less than 24% makes no sense and is literally a dangerous metric for investors to consider. My own guess is that revenues will grow at least another 40% next year and will surpass $800 million. That brings the EV/S to less than 6X, still a bargain for the kind of growth Twilio is likely to achieve.
May 2018 - About a year after Lawson and two friends founded Twilio in 2008, he was invited to introduce it at the New Tech Meetup. Rather than talk about an inherently difficult-to-explain technology, Lawson decided to let the Twilio software speak for itself. In front of a thousand people Lawson began telling his story while simultaneously coding a Twilio app, a simple conference line. In just a few minutes he opened an account and secured a phone number, and after writing a handful of lines of code that everyone in the room could understand, his conference line was up and running. Lawson then asked everyone to phone in, and just like that a mob of developers was on a giant conference call. Lawson then added some more code, and his app called everyone back to thank them for participating. As phones throughout the room began buzzing, the crowd went wild with enthusiasm. “He is the let-me-show-you-what-we-can-do type of exec,” says Byron Deeter, of Bessemer Venture Partners, an early backer who has become Twilio’s largest shareholder. “There’s no bravado and no ego, and that gives him a special charisma and authenticity.”
Today customers can build a call center entirely out of software building blocks rather than having to purchase expensive equipment or prepackaged communications solutions. What once required pulling copper wires into a data center and costly investments in carrier contracts and infrastructure can now be done by a small team of programmers with no upfront cost. Twilio charges only for usage.
"The things they made possible were crazy. The idea that someone with no telecom engineering experience could build a call-center flow by dragging and dropping was amazing.” Today Twilio connects to the global telecommunications network through 22 data centers in 7 regions and has agreements with most of the major carriers that allow it to deliver a message to pretty much any phone on the planet. Lawson calls this Twilio’s “super-network.” “As our business grows, the super-network becomes more difficult to replicate over time.” Many analysts agree. “Twilio is light-years ahead of their competition,” says Mark Murphy, of JPMorgan.
July 2018 – Good Article by Investing City
Twilio: Future Of Communications
Twilio provides communications API focused on making developers’ lives easier. It looks to have a promising future because it is attacking a huge market and it has already garnered 54,000 customers.
Investment Thesis
Twilio is a buy for three reasons. It is the future of communications, it has a sticky developer-first sales model, and its growth story has been masked by decreased revenue from Uber.
Future of Communications
Twilio’s business is comprised of three main software layers:
the Programmable Communications Cloud (PCC),
the Engagement Cloud,
its Super Network.
The foundation is the Programmable Communications Cloud, which is an assortment of APIs (application programming interfaces) that allow developers to embed communications into applications.
Let’s say you own a restaurant and you want to set up a system to text diners when their table is ready. Twilio’s software allows you to simply implement the communications infrastructure necessary. Rather than developers spending inordinate amounts of time figuring out communications for every application, they can just use Twilio.
And the market is huge. Their software essentially shrinks down the global telecom network to digestible APIs. Currently, big network service providers (NSPs) like Verizon don’t have the software competency to de-throne Twilio.
But Twilio is not taking its proverbial foot off the pedal. It recently announced it would attack the modern-day contact center with its latest product, Flex, which is a cloud-based application platform to enable superior contact center solutions. Currently, the cloud has only penetrated 10-15% of modern contact centers, so Twilio sees it as a greenfield opportunity.
Not only is Twilio’s software disruptive, its marketing tactics are as well.
Developers First - Twilio’s main focus is developers rather than upper level execs like CIOs or CTOs. It makes sense because developers are the ultimate users anyway. And this has led to wildfire-like growth.
While customer growth has been incredible, S&M expenses have stayed reasonable. Relative to other tech hyper-growth players like Okta and New Relic that spend upwards of 40-50% of revenues on S&M, Twilio spends just 23%.
One of Twilio’s stated goals is to be in the toolkit of every developer in the world. It even has its own programming language called TwiML that has over 1 million registered users.
Another advantage of targeting developers is a virtuous cycle of innovation. Twilio’s Engagement Cloud is a set of APIs that are built from common use cases that developers requested. So, Twilio’s current customers are a source of R&D and ideas to make the APIs functionally stronger.
Our products in the Engagement Cloud combine the flexibility provided by our platform, along with the learning we’ve gained over the past ten years…
Masked Growth Story - Twilio has struggled with customer concentration in the past. In late 2016 and early 2017, shortly after their meteoric post-IPO rise, it was having some issues with a big customer, Uber, who wanted to take all communications in-house, because it were spending too much with Twilio since sales are usage based. This sparked questions about Twilio’s value proposition and its moat. Were Twilio’s APIs easy enough to create in-house? The bear argument was further strengthened by Twilio’s relatively low gross margins for a software provider. Bears said the company’s APIs would be commoditized since they had no real differentiation, just look at those gross margins, the Bears exclaimed!
The stock dropped from a high of $64 to a low of $24. Seemingly, the bears had won.
But Twilio wouldn’t lay down. In fact, the company stayed true to its core values: just figure it out, be creative, and be resourceful.
So, they figured out what to do, and did it.
Though the results looked blah because Uber was tapering off its spend, the numbers ex-Uber were stunning. In fact, base revenue hasn’t dipped below 60%. But including Uber, investors who didn’t understand saw rapidly decelerating growth coupled with worries about differentiation and value proposition.
This past quarter really seemed to be the turning point. Total revenue grew 48% to $129 million, an acceleration from 40% growth in Q4 of last year. Sequential growth was even more impressive at 12% in the latest quarter.
Twilio is close to profitability on an adjusted basis but that is clearly not its priority. Free cash flow swung very positive in the last quarter due to some balance sheet items flowing through, but it was a good sign nonetheless.
Furthermore, 83% of its business is usage-based meaning that Twilio grows alongside its customers. As clients grow, they will likely use more communications, meaning more dollars in Twilio’s coffers. However, most companies will not grow as large as Uber where it makes financial sense to take communications in-house.
Now to switch gears to valuation.
10x forward sales may seem very expensive, but considering 60% growth, it’s actually one of the better deals out there. Granted, gross margins are not sky-high, but if base revenue ex-Uber can continue its torrid pace, I think there is still upside left in this name.
Conclusion - Twilio’s disruptive APIs in the huge communications market makes it an interesting software play. Its developer-first focus and masked growth story add to the investment allure. Consider Twilio the future of communications.
Disclosure: I am long TWLO.
Aug 2018 – Jun quarter results
Base Revenue of $135 million, up 54%, and 15% sequentially
Gross Margins – stable at 55% (We remained focused growing the business long-term rather than maximizing gross margin in the near term. In the long-term we feel very comfortable with our long-term gross margin model of 60% 65%).
Dollar-Based Net Expansion Rate of 137%, and 145% excluding Uber.
• Adj gain from operations of $2.2 million, up from losses of $4.7 million a year ago, and losses of $3.9 million sequentially.
• Adj EPS of 3 cents, up from a loss of 5 cents a year ago, and from a loss of 4 cents sequentially. (We got to adj profit a quarter earlier than guided due to the revenue upside, but our priorities remain focussed on reinvestment for growth rather than expanding operating margin).
• 57,300 Active Customers, up from 43,400 a year ago.
• Launched the Twilio API for WhatsApp, allowing our customers to easily add one of the most important global messaging channels to their applications.
• Collaborated with Google to integrate Google Cloud Contact Center AI into Twilio Flex, the first fully programmable cloud contact center platform.
• Issued $550 million in principal amount of 0.25% Convertible Senior Notes due 2023.
Raised guidance for everything
Conference Call
If you actually look at Base Revenue growth excluding Uber, it has been in the low and mid 60% range over the last eight quarters, so as we scale this business we maintain consistently high revenue growth.
As far as contact centers, 90% of the world is still on premise versus cloud, even though they want to be on cloud, and we will help them with Flex… I think that there’s a runway for us for many, many years to be replacing old legacy technology, I think there is going to be no shortage of opportunity for us to do that for years to come.
Saul: My take – A blow-out quarter! And a euphoric conference call!
Bert’s take: very positive
I am obviously pleased with the company’s performance which has certainly been more than satisfactory. I am also pleased with its execution and its future plans. So-called expensive names such as this one have real value if they execute well and have the ability to innovate successfully.
Should you stick with commitments in Twilio if you have them? I think so. Growth rate estimates are still too low. The opportunity keeps growing. Twilio has demonstrated some operating leverage at scale. There is no reason to sell it. It still offers significant opportunities… Of course, notionally it is riskier to own highly valued shares, than the road-kill that typically passes for value stocks. On the other hand, the serious risk in pursuing a value strategy is significantly underperforming.
I think it is worth noting that this is something like the 8th consecutive quarter that Twilio has been able to achieve 60%+ growth excluding Uber. So, yes, this quarter was an inflection point in term of headlines, but it was really consistent with past growth. Twilio has been in a hyper-growth mode for some time now. It still is, and it is likely to be for some time into the future.
It had a 137% dollar-based net expansion rate-excluding Uber the rate was 145%. There are a few companies with a higher rate-but not many. Again, with a rate like that, any extra spending on sales and marketing is extremely profitable. It is foolish in the extreme to ignore just how much older cohorts are spending on Twilio and just how profitable it is for the company to acquire new users. It should be pointed out, as the CFO did, that as the older cohorts become larger, the percentage expansion rate of those cohorts will drop. I am not sure how that math will play with the overall expansion rate. This rate has been consistent for some time now. It suggests a very high level of user benefit from their purchase of Twilio solutions, and it is one reason to expect strong growth for years into the future.
Twilio is and has been focused on driving top-line growth While it did achieve some operating leverage this past quarter on a sequential basis, the gross margin percentage did not rise. Twilio uses pricing to secure new customers, and with the level of net retention, the economics of that are very evident.
I would like to focus on the early success of Flex. I have written about Flex in the past and it is one of the keys to understanding why this company has the opportunity to grow at a prodigious rate for many quarters into the future. Flex was introduced about 4 months ago, and is now in the late stage of Beta and it has been opened up to more users. It was oversubscribed in terms of Bet applicants. An interesting use case for Flex that Twilio mentioned was Shopify. Flex could be the product that drives the continuation of hyper-growth into a time period beyond what is currently expected. Based on the inference I have drawn from the recent conference call, the pricing of Flex is likely to drive a gross margin expansion.
Providing tools to re-architect the contact center in the cloud is potentially a very large business. Most contact centers today are on-prem-mainly because that is where they were built. Most organizations want to migrate their contact centers to the cloud and want the ability to customize the user experience.
At the moment, the forward EV/S calculation is a bit less than 11X. Is that extended? I do not think it is for projected growth above 40%, for a company with so many growth opportunities, and what appears to be a dominant competitive position.
Sept 2018 – Acquires Ytica - A longtime Twilio partner, Ytica provides highly customizable contact center reporting, speech analytics and WorkForce Optimization (WFO) software to enhance agent performance in the contact center and provides businesses a unified view of the way they engage with their customers. Ytica’s technology will now be available as a part of Flex, our fully programmable application platform for the contact center, and is also expected to be offered as a standalone product to other contact center SaaS vendors.
In working with Ytica over the past several years, it became clear they have both the most robust cloud architecture in the WFO space as well as the most similar perspective as Twilio on the value of customization for enterprise software. We’ve worked with many happy joint customers and knew that together, we could offer an enterprise-grade solution that is built for scale and far eclipses any other contact center solution currently in the market. We’re thrilled to bring Ytica aboard.
Sept 2018 – a Re-recommendation from a paid service of our board sponsor. (Greatly abbreviated)
Twilio’s appeal goes far beyond small operations with limited resources. It has over 57,000 active customer accounts ranging from small-to-medium-sized businesses to some of the world’s largest enterprises. It powers the voice applications on Facebook’s WhatsApp. If an Amazon Web Services customer wants to embed voice calling or messaging into a Web page or mobile app, it’s just a few clicks away, thanks to Twilio.
Twilio has already been wildly successful for members who bought after our first recommendation in January 2017 — the stock is up 190% while the S&P has risen 29% in the same period. But since it’s continuing to gain momentum as it moves forward, we think there are plenty of gains to come.
Oct 2018 – Acquisition of SendGrid, Bert’s Take
Yesterday, Twilio announced its purchase of SendGrid. This will be a stock purchase, with Twilio paying $2 billion in stock for SendGrid’s equity.
It was also announced that both Twilio and SendGrid had exceeded their forecast for the period ending September 30th. Just for the record, Twilio was expecting growth to be greater than 50% for the period and SendGrid had been forecasting revenue growth of 27%.
Twilio shares declined about 4% in after-hours trading. Presumably the decline was a function of SendGrid’s lower growth rate and the premium being paid for the acquisition. My belief is that the revenue synergies of the transaction are substantial and there will also be noticeable cost synergies. While Twilio shares have only declined by about 15%-16% to this point, I would strongly urge subscribers to take advantage of this pullback to either add to, or initiate positions. This is a very positive transaction for Twilio and one that I presume could only happen given the recent stock market implosion for smaller cap growth names.
SendGrid describes its platform as API centric and that is essentially the same focus as Twilio has. SendGrid is a leader in email delivery and sends transactional and marketing emails for 74,000 customers. It dwarfs the competition.
I think the shares are reasonably valued because of their hyper-growth outlook and think that this transaction will add a few points to the growth rate once the integration activities take hold.
Oct 2018 – Product announcements
Twilio Announces the general availability of Flex, fueling the next generation of the Contact Center
Twilio Flex, the first fully programmable cloud contact center platform, is now generally available. Since its announcement in March, Flex has rolled out to thousands of contact center agents including support and sales teams at Lyft, Scorpion, Shopify and U-Haul. In addition, as Twilio continues to expand the Flex ecosystem, more than 145 consulting and technology partners - including Cognizant and Perficient - are supporting Flex. With today’s announcement, Twilio also revealed industry-first pricing options, allowing customers to choose between traditional per agent monthly pricing or a flexible per agent hour model.
It’s been amazing to see the excitement Flex has created in the contact center market since our announcement in March. Enterprises no longer have to make the choice of whether to build or buy because Flex deploys like a SaaS application, integrates like a premise-based solution and iterates at the pace of a web platform. As of today, we will be rolling out Twilio Flex to the thousands of companies who signed up during beta. We can’t wait to see what they create.
With Twilio Flex, enterprises can:
• Deploy instantly and integrate quickly: A simple onboarding experience allows businesses to get up and running within a few minutes.
• Deliver a true omnichannel experience: With Twilio Flex, enterprises can deliver a true omnichannel experience with access to more than a dozen channels out of the box, including Voice, SMS, Video and WhatsApp.
• Have complete visibility and control over interaction data: Flex gives supervisors and administrators the analytics and insights they need to manage performance, quality and customer experience.
• Automate the known and escalate the unknown: Using Autopilot, Twilio’s conversational AI platform, businesses can rely on machine learning-powered bots that automate information gathering and respond to frequently asked questions and then transition the conversation to a human agent using Flex for more complex queries.
• Enable agents to securely process payments: Powered by Twilio , Twilio’s new API for building payment experiences, contact center agents can now securely accept credit card payments from customers over the phone.
• Run their entire contact center on Twilio’s cloud infrastructure: Unlike traditional cloud deployments, Twilio Flex’s new plugin framework allows developers to make changes and retain control of their contact center application, while still benefiting from continuous improvements made to the rest of the application by Twilio.
Twilio announces Autopilot, enabling millions of developers to build omnichannel bot experiences that don’t suck
Designed to work alongside contact center agents, Autopilot takes care of initial information gathering and then passes context of that interaction to an agent when a human touch is required
With Autopilot, developers can write applications once and deploy to SMS, Chat, Alexa, Slack and Google Assistant without additional code
Autopilot enables businesses to:
• Develop intelligent bots faster. Autopilot takes care of the Natural Language Understanding and Machine Learning which allows developers to focus on business logic and customer experience.
• Personalize the tone and conversational style of the interaction. Style sheets allow developers to select the tone of voice, language and error and success messages of the bot, giving businesses complete control of the experience they deliver to customers.
• Use their own data to train bots that get smarter over time. Developers can use their existing company data to train bots to trigger actions or replies based on actual conversations.
• Smoothly handoff conversations to agents when necessary. Bots can automate information gathering and respond to frequently asked questions, and then transition the conversation to a human agent for more complicated queries. Autopilot passes along all the context of the automated interaction (name, account number, reason for calling, etc).
• Build applications once and deploy across any channel. Autopilot’s responses are adapted to provide the best experience on nearly any channel including IVRs, SMS, Chat, Alexa, Slack and Google Assistant.
Availability - Twilio Autopilot is available for developers to begin using in public beta today.
Twilio announces : empowering millions of developers to build secure payment experiences into communications channels
Twilio partners with Stripe to power secure, over-the-phone payments
Twilio Programmable Voice achieves PCI Certification, allowing for secure and intuitive over-the-phone payment workflows
, a new API that enables developers to easily process payments securely over the phone. With just one line of code companies can quickly and easily accept payment via automated Interactive Voice Response (IVR) interactions or in contact center environments.
Stripe, a technology and payments company, is Twilio’s initial launch partner. With Twilio, Stripe customers will be able to connect their account and begin accepting credit card payments in minutes.
Historically, taking payments over the phone has been either unsecure or painfully difficult and complex for businesses to support. With Twilio , there’s a better way. It gives developers the tools needed to build secure and intuitive payment experiences. Now developers will only need to add one line of code to begin processing payments over the phone.
With , businesses can securely accept payments via IVR prompts, enabling automated collection of credit card details. Built-in features help contact center agents connect with customers and assist in making phone payments without revealing sensitive credit card data to the agent, adding to the security of customer data in a contact center setting.
Many businesses want to allow their customers to place orders or pay bills over the phone. However, with the continued rise in identity theft, consumers are more cautious and protective when it comes to sharing their credit card information. Twilio makes it easier for developers to build a secure and intuitive payment experience for customers. With it, developers are able to securely capture credit card information and pass on the information to a payment platform, such as Stripe. Twilio allows businesses to:
• Add to contact centers: Easily add payment experiences to contact centers so agents can assist customers through the payment process. When it is time for a customer to share credit card information, the agent will never see or hear the numbers being entered.
• Automate payment workflows: Businesses can enhance their existing IVRs by adding in for a customizable payment experience. allows you to control the language of prompts, customize voice user interface, and accepted credit card types.
• Integrate with payment platforms: Through Twilio’s Connectors, developers will be able to connect with payment platforms, such as Stripe, with just a few clicks.
• Support a card on file for faster future payments: Customers who make repeated purchases with a company can choose to have their credit card information saved on file for faster checkout later.
• Drag and drop a payment option into their Twilio app with Studio: Developers will only need to add one line of code or use Twilio Studio Widget to begin accepting credit card payments with their Twilio Programmable Voice applications.
• Ensure no sensitive information is recorded: If a company records customer phone interactions for orders, Twilio will automatically pause the recording when is activated and resume the recording once the payment information has been supplied, preventing the recording from capturing payment information.
With Stripe and future payment platforms, developers will be able to add these payment providers as a Connector through a simple interface within the Twilio Console.
Pricing and Availability - Twilio is currently in public beta. It will be will be generally available in the first half of 2019.
Twilio and T-Mobile US partner to introduce Twilio Narrowband: the nation’s first developer platform for Narrowband IoT
T-Mobile’s first U.S. Narrowband IoT Network optimized for IoT devices sending small and infrequent packets of data
Twilio has created a new developer platform for the T-Mobile Narrowband IoT (NB-IoT) network today. Twilio Narrowband is the first developer platform for NB-IoT in the U.S., a cellular low-power wide-area network technology, which will substantially reduce prices and increase battery life for intermittent low-bandwidth connections. Twilio also announced the Twilio Breakout Software Development Kit (SDK) to help developers start taking advantage of NB-IoT networks.
NB-IoT was designed for the majority of IoT devices that don’t need a lot of bandwidth. With NB-IoT, devices can consume a fraction of the battery power they do with previous cellular M2M devices, enabling connectivity at a fraction of the cost. NB-IoT is built for smaller data packets, such as timestamps, GPS coordinates and status updates for a variety of industries, from smart metering to health device monitoring.
Twilio introduces Global Super SIM for IoT Developers
Enables Developers to Use a Single API to Deploy IoT Devices Globally
Twilio Super SIM tackles the complexity of network connectivity to lower the barriers of entry into the IoT market
Introduced the Twilio Super SIM, built on Twilio’s mobile core infrastructure, and an expanded set of tier-one carrier relationships with Singtel, Telefonica and Three Group, which power Twilio Programmable Wireless. With the Twilio Super SIM, developers can use a single API to deploy Internet of things (IoT) devices globally, with the confidence that Twilio can optimize network performance on tier-one carriers based on the location the device is deployed in.
Twilio’s Mobile Core Infrastructure
Twilio’s mobile core infrastructure is a complete software implementation of a mobile core, 2G, 3G and LTE Evolved Packet Core (EPC) in the cloud, which means it is inherently global. Twilio’s mobile core is the software layer that controls the wireless connectivity for the Twilio Wireless Super Network.
Expansion of the Twilio Wireless Super Network
With Twilio’s mobile core, Twilio is able to add wireless connectivity through the expansion of the Twilio Wireless Super Network. By working with Singtel, Telefonica and Three Group, Twilio can provide access to wireless connectivity from multiple tier-one operators through a single global interface.
Twilio Super SIM
The Twilio Super SIM brings together Twilio’s mobile core and Wireless Super Network to provide one SIM with one API.
Twilio Super SIM offers developers:
• Twilio’s mobile core with a software mindset: Cloud-based mobile core that continually improves. Deployed globally for low latency and high availability.
• Access to a global network of tier-one operators: Working in cooperation with Singtel, Telefonica and Three Group, Twilio provides developers access to multiple networks in every country, resulting in competitive rates with a single billing relationship.
• Connections to the best available network: Intelligently connects IoT devices to the right network wherever the Twilio Super SIM is deployed.
• A granular view of SIM network selection and usage: Provides flexibility and transparency by giving developers the control to review connections, choose networks and view usage all in a single interface.
• A “build once and deploy globally” approach: A globally deployed mobile core infrastructure and multiple operator profiles on a single SIM.
Pricing and Availability
Twilio Super SIM is currently in private preview. A public beta will be offered in spring 2019 with flexible pricing options
Nov 2018 – Announced incredible Sept 2018 quarter results
Base revenue of $154 million, up 68%, and up 14% sequentially.
• Adj income from ops of $4.3 million,up from a loss of $7.7 million.
• Adj EPS of 7 cents, up from a loss of 8 cents.
• 61,153 Active Customer Accounts up from 46,489 a year ago.
• Dollar-Based Net Expansion Rate was 145% up from 122% a year ago.
Conference Call
Revenue growth was strong once again with base revenue growing at 68% year-over-year. Excluding Uber, growth was 70%. The power of our business model was evident in our dollar-based net expansion rate, coming in at 145% or 147% without Uber. Please note that after the fourth quarter, we’ll be moving away from the ex-Uber metrics.
Gross margins came in above 55%, We remain focused on growing the business long-term rather than maximizing gross margin in the near term.
Q - Congratulations again on another quarter of meaningfully accelerating growth across every metric. How should we think about that dollar-based net expansion metric given its expansion here over the last couple of quarters
A – Longer term, it’s an extremely high expansion rate. In the long term, the older cohorts will become larger, and they do grow at a less rate than the new cohorts. So over time it will decrease, but we still think it’s going to be meaningfully important going forward.
Jan 2019 – Rec from a different one of the paid services (very compressed here)
The Bottom Line - Twilio has developed an impressive following among tech leaders, and its ability to deliver key communications needs has brought it huge success. We don’t see that changing anytime soon, and Twilio should have a long runway of potential success in the years to come.
Jan 2019 - Twilio Names Chee Chew as Chief Product Officer
Former Amazon and Google executive joins Twilio’s management team. Chee Chew will be joining the company as its Chief Product Officer. Chew will join the executive management team and report to Jeff Lawson.
Chee brings more than 25 years of experience in the technology industry, formerly working at companies such as Amazon, Hewlett-Packard, Google and Microsoft. Previously, he was the VP of Consumer Engagement at Amazon and was responsible for its core shopping experience on the web and mobile apps. Prior to Amazon, Chee was VP of Engineering at Google where he was responsible for Google’s real time communication efforts, including Google Voice and Google Hangouts and Google Chrome efforts. He holds a BS and MS in computer science from MIT.
(Saul: My Take: A very competent and top quality guy.)
Feb 2019 – Completed acquisition of SendGrid (adding eMail capability) e.o.m.
Feb 2019 – Dec quarter and 2018 year results
Base Revenue of $186.2 million, up 77%, and 21% sequentially
Dollar-based net expansion rate of 147%
Quarter Financial Highlights
Adj op income of $2.4 million up from a loss of $3.9 million
Adj EPS of 4 cents up from a loss of 3 cents
Full Year Financial Highlights
Base revenue of $593 million up 62%
Adj op income of $4.1 million up from a loss of $20.1 million
Adj EPS of 11 cents, up from a loss of 19 cents
Key Metrics and Business Highlights
• 64,286 Active customer accounts, up 31% from 48,979
• Dollar-Based Net Expansion Rate was 147% for the quarter, up from 118%
• 1,440 employees.
Conference Call
Together, we and Sendgrid have more than 140,000 customer accounts
Our platform of flexible building blocks is very powerful to customers, allowing them to both reinvent existing use cases and create entirely new ones. This is just the beginning, and we are investing to accelerate our engagement platform vision for our customers.
Gross margins came in at 54% in the quarter, in the range of recent quarters… Looking forward, simply put, you should continue to expect some fluctuations in our underlying gross margins. Adding SendGrid will provide an upward lift in the short term but our priorities remain the same. We are focused on growing the business around the world rather than maximizing gross margins in the near term.
As the acquisition closed on February 1, we will be getting 2 months of contribution from SendGrid in our Q1 and 11 months in our 2019 results. This equates to roughly a $28 million contribution to our Q1 revenue guidance and roughly a $170 million revenue contribution to our full year revenue guidance.
So for the full 12 months of 2019 in rough numbers, this guidance equates to about 45% organic growth for Twilio base revenue and about 25% organic growth for SendGrid base revenue, or over 40% growth for the combined base revenue going forward…. But just in general, we see really strong expansion rates going forward.
And one of the things that’s happening is that the comparisons are getting tougher as we go forward, and as we become a larger company. As we approach $1 billion, growth is going to be harder to maintain at those levels. And there are just not that many companies at that size, and able to scale as rapidly as we have. And this is really best-in-class growth, if you will, at this scale.
Average revenue per customer continues to grow at a 25% to 30% rate.
Bert’s Take
Apparently some investors having seen the rate of gain over the past year or so, just can’t be satisfied. These were great numbers. Twilio has a great outlook and I would not pay attention to guidance. Most analysts raised their price targets by either a moderate amount or more considerably. I have recommended and owned Twilio for a bit more than a year at this point. It won’t go up another 300% in 2019, but it will continue to be an excellent investment and will substantially outperform most other IT names. I would add to positions or use the pullback as an opportunity to establish a new position.
Revenues were up 77%. The dollar based net expansion rate was 147%. It exceeded its guidance by $20 million, or about 11%. It continued to add about 3200 active customer accounts per quarter, consistent with the growth each quarter in 2018.
I would not put much stock in company guidance. Is my forecast better than theirs? It is probably more reasonable based on trending the past. On the other hand, it is not really feasible to forecast revenues with any precision for a company such as this. Why? Basically this is a company that sells API’s to developers. In turn, the developers use those API’s with which to build applications that are then deployed as applications. No one can really know in advance what applications will be developed and how they will sell.
What is happening, and will continue to happen is that developers will figure out different things they can do with communication API’s that are beyond what most readers-and this writer-might imagine. These days, for example, Coca-Cola Vending machines send field technicians alerts when they need service. Zendesk uses Twilio so its staff can talk to customers as part of its help desk application. These days, developers are often working backward trying to figure out how an app can improve something like a Customer Satisfaction score.
Finally, I am certain that Twilio bought SendGrid at the price it paid in order to achieve substantial revenue synergies. SendGrid grew 31% last year. Its revenues probably wound up at around $170 million which would have made it about 21% of the revenues of the combined enterprise. It would hardly be conceivable to imagine a scenario in which the products associated with SendGrid did not see a significant bump in that rate-although presumably its offerings will be merged into and subsumed in the overall Twilio offering and will not be reported separately.
I am not going to discuss gross margins in any detail. A year ago that was a favorite concern of short-sellers and Twilio skeptics. It still gets lots of attention, but less so now than before because gross margins, rather than falling, are rising.
I will briefly discuss the rapid growth of opex. Any company that is able to consistently grow its customers at high rates will maximize its profits by spending as much as is prudent on demand creation. Twilio’s 147% net expansion rate, if not best in class, in close to best in class.
And in that regard, it might be well to focus on the company’s latest major offering Flex. It is a transformative product that is in its infancy. In this latest conference call, the company called out quite a number of Flex wins. Users have been using Flex to build programmable contact centers which is an app that propels the company into a new market space with a very large TAM. I do not really have any idea as to the potential revenue contribution of Flex this year-other than to say it will be a major growth driver and is almost certainly not encompassed within the 45% organic growth forecast the company offered. Almost all large enterprises have some kind of a contact center. Flex as a platform is a very new kind of contact center software that is likely already disrupting the space.
When I considered the results that Twilio reported, what I saw were a management team building for years of hyper-growth, with profitability and leverage to kick in down the road. That may not be everyone’s kind of investment. But I think there are more than enough investors who are looking for growth vehicles with competitive moats and expanding TAM’s to drive Twilio’s share price, even if not quadrupling each year.
Feb 2019 – Drew’s Post
I’m all in! When Saul’s enthusiasm for Twilio got me back in last August, I saw the potential, but I admit I was tepid. I said, “Probably won’t go higher than 5% here. I believe in the growth, but I can’t ignore the margins.”
Then I doubled my position in September. I was convinced on Twilio once again, and said, “Twilio dominates their industry. Hard to see them not continuing to grow and do great. …but I probably won’t add shares.” I kept it as a top 5 position ever since, but didn’t let it get above 10 or 11%.
This quarter, I’m changing my tune. I may not be as bold as Saul (20%+? You’re a wild man in the best way!), but I’ve added more than 30% to my Twilio position in the past week or so. Their growth is simply staggering, and I think it’s only going to get better.
In fact, in my just-for-fun poll on Friday, 85% of you voted that Twilio would report $248m or more in Q1 2019. That would be at least 92% more revenue than in Q1 of 2018. Sure, it’s not all organic, but does anyone care!? (Good point!)
Now I agree, they need to reign in the spending. But all things in time. When a company can grow like this, I want them investing every cent they can to do just that. But the bottom line is that it’s too early to worry about the bottom line. Not when you can grow at this pace.
Q4 Notes
Revenue: 204m (up 77%)
Gross Margin: 53%
Net Expansion Rate: 147% (WOW.)
Guidance: 225m at high end (74% growth – though not all organic)
P/S: 21.4 (but if they grow at a 90% to 100% pace, that will fall FAST, even though growth is not all organic)
So I admit Twilio isn’t perfect, but I’ve seen enough that I’m all in. What does “all in” mean? Well in addition to adding over 30% to my position, I am upping my conviction in Twilio. They don’t just offer useful software to customers. They don’t even just “facilitate” customers’ sales like SQ or SHOP. No: Twilio actually becomes an integral part of their customers’ offerings. Truly special.
Post by nilvest
You may be over estimating some of the worries…
The share count went from 100M to 130M as SEND acquisition was all stock. Previous 4 quarters dilution has been reasonable, so I wouldnt worry about this one.
Also I would think that some of the stock-based comp and Opex jump this quarter was related to closing the SEND acquisition and also offering new TWLO stocks to ex-SEND employees. Again, I think this will subside going forward.
Mar 2019 –Re-Recommendation from the second paid service
I’m excited to recommend it a second time today. If you bought shares of Twilio after my first recommendation, you’re already up more than 40% — not bad for two months. But I think Twilio is still just getting started.
Mar 2019 – Chris’ Take
TWLO (20.9% allocation)
Revenue growth has been very strong and accelerating: 40.6%, 47.8%, 54.2%, 68%, and 77.3%. Amazing!
SendGrid acquisition just closed which just about doubled the customer count, which had been growing organically above 30%. I look forward to how effective the cross-selling efforts will be, and I expect good things because TWLO’s customers have been asking for email communication to be added.
The Net Expansion Rate has also been increasing sequentially for the past 4 quarters (some of the other companies are showing stable expansion rates): 118%, 132%, 137%, and 147%. This is just amazing and ex-Uber expansion is even greater.
TWLO is the clear market leader in its category.
They identify what new applications are being built by their 140,000 customers, and add new services. Very likely that there will be more successful new products/services to come in the years ahead.
Execution has been outstanding.
Margins are stable but relatively low at 54%. It says that it sees margins in the mid-60% range eventually, but for now is focusing on expanding within the market.
The market cap is $14B; I believe that TWLO could grow 10x to a $140B company.
EV/sales (TTM) is 21.5, and will be 13.2 in a year with the same 1-year growth rate.
In summary, it deserves the highest allocation and I will keep it at it’s current allocation (neither sell nor buy).
Apr 2019 – New SendGrid product being cross-sold
Twilio SendGrid introduces new Expert Service offerings for developers and marketers
In-depth data and consulting engagements help customers become better senders and increase return on investment for their email programs
Our new Expert Service offerings provide customers with options for additional support, education, detailed data and analytics, and expert guidance to help optimize their email programs and drive business results. Now, customers of all sizes can increase their return on investment for their email programs with a variety of consulting, data analysis and managed service packages that work best for them.
Customers utilizing our Expert Services have seen an average 97% deliverability versus the industry average of 85%. With our team of dedicated experts, customers can leverage our nearly 100 years of combined experience to improve data analysis and guidance to optimize their email programs and increase their return on investment.
Apr 2019 – Mar 2019 quarter results
Base Revenue of $221 million, up 88%
Dollar-Based Net Expansion Rate of 146%, up from 134%
The early customer reaction regarding the acquisition of SendGrid has validated our strategy of powering the future of customer engagement on one platform, and we look forward to building this future together on behalf of our customers.
• Total Revenue and Base Revenue include revenue from SendGrid starting on February 1, 2019 (the date of acquisition).
• Adj operating income of $3.4 million up from a loss of $4.7 million a year ago.
• Adj EPS of 5 cents, based on 130 million adj shares up from a loss of 4 cents based on 95 million shares a year ago.
• Key Metrics and Recent Business Highlights
• 154,800 Active Customer Accounts up from 54,000 a year ago. (includes SendGrid customer accounts).
• Introduced new Expert Services offerings to provide customers with o expert guidance to help optimize their email programs and drive business results.
• Launched Twilio for Salesforce to allow organizations using Salesforce to easily send and receive SMS messages directly from their Salesforce CRM.
Conference Call
We continue to support efforts in to combat the scourge of robo calling. I’m sure you get continual stream of calls from unknown numbers with pre-recorded messages promising a wide variety of wonderful things. It’s gotten so bad that you don’t answer the phone you don’t recognize the number.
So we design our platform to prevent this type of activity. We do not want this business and we never have. We continue to work actively to deter bad actors from our platform. Our terms of service expressly prohibit it. We believe transparency is also important. So we launched a free service to allow consumers to look up any number to see where a call is coming from and help report suspected global calling.
Looking into the future, we believe that the next step is to put consumer back in control of their phone through tools to allow them to receive only wanted communication from trusted partners. We see a world where every time your phone rings, you can see who’s calling, not just the phone number but the name of the personal business and trust in the accuracy of that information. And a software running on your behalf can decide what to do with the caller types. In this vision, everyone receives the communications they want and none of the ones they don’t. It’s your phone and your call. We want to help everyone take back their phone. (Saul – this is very important and removes a big question about Twilio)
We have a once in a generation opportunity ahead of us to revolutionize one of the largest markets in all of IT communications, by moving it from its legacy and hardware to its future and software. It’s still day one of this journey and I couldn’t be more proud of our team and excited about the road ahead.
The organic growth for Twilio’s base revenue was above 60% year-over-year and Twilio SendGrid’s organic growth for the sub-period was 30% year-over-year.
Our dollar-based net expansion rate was 146%. This metric will not be impacted by the acquisition of SendGrid until we close Q1 of 2020, a year from now. Over time, it will decline a little bit, just given that these older cohorts are going to become a really large part of the mix.
Gross margins came in just above 58% up from 54% sequentially. The largest contributor by far was folding in higher margin revenue from SendGrid, which added about 3 points. On an organic basis, gross margins also increased a bit sequentially as the base variable mix improved.
And on that note, we recently got some clarity on the Verizon A to P offering we outlined a few quarters ago. As a reminder, Verizon is establishing a new A to P (or application to person) channel for long code SMS messages that will add a quarter of a penny fee for message to all businesses with A to P SMS messaging use cases. Verizon will be implementing this new offering in mid-May, and we’ll be moving customers over to the new service accordingly. We’ll be passing this fee through so this won’t impact the gross profit dollar received per message, but it will add to reported revenue, and thus will make the gross margin percentage seem smaller. (Saul – It will be pass-through revenue)
Overall, with the strong results we are seeing, we plan to continue to invest in the growth of our business given the tremendous opportunity ahead of us.
May 2019 – Twilio partners with Microsoft Azure IoT, adds identity and authentication capabilities to its IoT connectivity offering.
IoT solutions often ignore identity and authentication best practices due to cost and complexity, introducing security risks.
Trust Onboard reduces complexity around identification and authentication for makers of cellular IoT devices
Announces integration with Microsoft Azure IoT enabling developers to automatically authenticate devices to Azure’s IoT cloud platform
Twilio announced Trust Onboard, a feature for its IoT SIMs that enables developers to identify and authenticate cellular connected devices against cloud services. Twilio launched Programmable Wireless in April 2018, and has shipped more than a million SIMs that provide global connectivity to IoT developers.
With Trust Onboard, Twilio now delivers connectivity, device identification and authentication capabilities on a single SIM, dramatically accelerating IoT time to market.
Twilio also announced integration with Azure IoT as part of Microsoft’s IoT Plug and Play connectivity, letting IoT developers to sync devices to their Azure cloud from the Twilio Console, establishing trust as soon as the device comes online.
Cellular IoT developers are burdened with two major challenges. First, developers need to reliably connect large fleets of devices to cellular networks of different types around the world. Twilio’s IoT SIMs and Wireless Supernetwork tackle this problem. Then developers need a simple, secure mechanism to exchange data with their devices. Trust Onboard is our first product that helps developers bridge this gap. It’s a frictionless way to deploy a large fleet of devices, identify and authenticate each one to the cloud.
As IoT device fleets get larger and time to market becomes more critical, identity management is increasingly painful for IoT developers, who have often had to invest significant time and resources figuring out how to securely pre-install unique identity credentials during manufacturing. Having Trust Onboard certificates pre-embedded on each SIM reduces the time it takes to get an IoT solution to market while adhering to best practices.
Trust Onboard: provides a unique identity to an IoT device via preloaded X.509 certificates, enabling a developer to authenticate against any cloud service. With Trust Onboard, developers can:
Establish a trusted identity for each device — with unique X.509 certificates on each SIM, developers don’t need to worry about generating or distributing their own certificates.
Authenticate against any cloud or backend service — dual certificates give developers the option to perform authentication in their own device code, or delegate it to the cryptographic hardware of the SIM itself.
Remove complexity from the manufacturing process — developers can optimize their supply chain and reduce time to market by using one vendor for connectivity and identity management.
Twilio’s Cellular IoT platform and Microsoft Azure IoT hub
With Trust Onboard, Twilio provides a simple user interface for an IoT developer to order SIMs — including embedded SIMs — with two day shipping. After ordering, they can now associate SIMs with their Microsoft Azure account so that each device can be identified and trusted by Microsoft Azure IoT Hub the first time it comes online.
Securely connecting large volumes of cellular connected IoT devices to cloud based solutions is still too difficult for customers. With Twilio Programmable Wireless with Trust Onboard and the integration with Azure IoT that we’ve done, our joint customers have a great solution to this challenge. This joint solution means the whole process enables zero touch provisioning for customers, so that non-experts will be able to turn devices on wherever they are in the world and they will automatically show up in their Azure IoT Applications and be fully operational. That is a huge customer benefit and supports our drive to simplify IoT.
(Saul: They are really working on IoT!)