Twilio Stock Forecast & Analysis: Is TWLO a Buy?

Written by Sean GraytokUpdated: 8th May 2022
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This Twilio stock forecast will help you decide if TWLO is still a buy. 

Twilio Stock Forecast: Background

Twilio is a cloud communications platform as a service (CPaaS) company that allows developers to programmatically make and receive phone calls, send and receive text messages, and perform other communication functions using its web services APIs.

Businesses use Twilio at each stage of the customer relationship — from text and email marketing to intelligent chatbot customer service to account and appointment notifications.

Twilio’s customers include Uber, Lyft, Instacart, Doordash, Grubhub, and Robinhood.

Twilio Stock Forecast: Investment Potential

#1. “Letter” as a Service Company

As we expand the capabilities of the internet, new “problems” arise. This creates the opportunity for entrepreneurs to specialize in newly minted niches.

The famous “software is eating the world” framework is not only ringing true but has inspired a new wave of companies that leverage software to provide specialized services.

Companies are branching off the traditional software-as-a-service classification because they’re recognizing value in granularity.

Cloud computing stockslike Amazon, Google, and Microsoft delineate software (SaaS), platform (PaaS), and infrastructure (IaaS) offerings.

Additionally, cybersecurity stocks like Okta (OKTA) provide Identity as a Service or IDaaS.

Uber & Lyft provide transportation as a service (TaaS), and Tesla hopes to one day achieve autonomous transportation as a service (ATaaS).

In the case of Twilio, it’s communication – a service that’s likely to stay in demand for some time.

#2. Don’t Reinvent the Wheel

Twilio works behind the scenes to connect the legacy telephony network to the internet.

This leg-work democratizes digital communication. Without Twilio, developers would have to reinvent the wheel for each communication use case.

Expanding this analogy, think of Twilio as the technology and infrastructure that builds the wheel.

Developers leverage Twilio’s network by selecting the type of wheel they need, which can vary in size, durability, and functionality.

Do they need wheels for a bicycle or a Humvee? Doesn’t matter — Twilio can provide.

#2. Strong Developer Community

Speaking of developers… millions of them build solutions on Twilio’s platform.

As of September 2020, 9+ million developers used Twilio across more than 180 countries to test, iterate on, and deploy customer experiences.

Here are some examples of Twilio supported technology:

  • An Uber notification that your ride has arrived
  • Your Airbnb (ABNB) host charged you a $300 cleaning fee
  • A successful Twitch login using 2FA
  • An email from Netflix (NFLX) announcing a new season of Peaky Blinders
  • A text from Instacart that says the store is out of eggs

All of this functionality was created by Twilio developers.

Twilio’s CEO, Jeff Lawson, believes in “sharing problems” with developers instead of “sharing solutions” with them.

In an interview with McKinsey, he underscored the importance of allowing developers to “really apply their creative problem-solving skills” instead of throwing product requirements at them.

So, what does all of this mean for Twilio as an investment?

We believe that Twilio’s developer-obsessed mindset will result in unmatched innovation in the communication space.

These breakthroughs will cause more companies to adopt Twilio-enabled services, ultimately increasing Twilio’s bottom line and capabilities.

Commence the self-reinforcing loop that causes TWLO to appreciate accordingly.

#3. The Modern Startup

It has never been easier for startups to scale, thanks to companies like Stripe and Twilio.

Instead of hiring a team of software developers to build communication rails from scratch, the startup can go to Twilio and have AI-enabled customer service the next day.

How about payments? They’re not building financial infrastructure themselves — they’re paying Stripe.

We believe startups will continue this trend due to the time, capital, and resources it saves them. Fortunately for Twilio, communications will likely be one of the first services startups look to deploy.

The best companies are leveraging artificial intelligence and automation to improve their efficiency and cut costs.

Customer service and relations is an area that is experiencing a massive shift — thanks to companies like Twilio.

Tools like intelligent chatbots, automated reminders, and automated marketing can improve the customer experience while saving the company millions.

Automating routine tasks will be beneficial for corporations and humanity alike, in our estimation.

There will be some fields where automation replaces humans entirely, but most jobs will be augmented by automation, likely resulting in retraining versus replacement.

For example, chatbots sorting initial inquiries and sending callers to the appropriate service representative recently received specialized training to respond to a specific problem.

We expect the short-term transitional friction to be worth the long-term benefits. Humans will be freer to pursue creative endeavors that cannot (yet) be replicated by machines.

#5. Blessings from Amazon and Salesforce

Amazon and Salesforce were significant participants in Twilio’s $130M Series E funding round back in 2015.

Six years have passed, and it appears that Bezos and Benioff did pretty well on this investment.

So much so that Salesforce invested an additional $40 million in Twilio as recently as April 2021.

According to Salesforce, the filing was necessitated due to a “value threshold,” possibly linked to its 2015 investment.

However, some investors believe a Salesforce acquisition is still in the cards.

Twilio Stock Forecast: Moat

Why do companies choose Twilio over other CPaaS firms? We believe the following describes Twilio’s moat:

Niche Giant + Developer Focused

Twilio is a giant in its niche and adds new products and functionality faster than its peers — if it can’t do it, it will acquire the companies that can (more on this later).

Companies want the latest and greatest as capabilities in cloud communications expand, so they choose the fastest and most proven CPaaS.

The opportunity costs of having to switch CPaaS providers outweigh Twilio’s premium pricing.

Next, Twilio is more focused on selling to developers than selling to business line managers, which is exemplified by their R&D versus sales and marketing budget.

This grassroots approach to product innovation keeps Twilio ahead of the competition and results in more authentic marketing.

While Twilio is increasing its sales and marketing spending, having the best product makes advertising easier.

Twilio Stock Forecast & Analysis: Q4 Earnings

Here are the numbers from Twilio’s Q4 2021 earnings call:

  • Earnings: Loss of 20 cents per share vs loss of 22 cents per share
  • Revenue: $842.7 million vs $767.8 million, up 54% year-over-year

Shares of Twilio popped as much as 29% after the call. 

It probably had something to do with beating revenue expectations by 10%. 

Granted, the stock as down 23% YTD going into the call, but a 29% pop is a 29% pop.

Twilio Stock Forecast: Competitors

In an effort to further differentiate itself from the competition, Twilio acquired the market-leading customer data platform, Segment, for $3.2 billion last year.

This purchase enables Twilio to help any business make their customer engagement across every channel more personalized, timely, and impactful.

Twilio goes shopping more than the average CPaaS — it also purchased SendGrid, an email API platform, for $3 billion in 2019.

Regardless, competition is alive and well. Here are a few of Twilio’s top CPaaS competitors:

  • 8×8 (EGHT)
  • Five9 (FIVN)
  • RingCentral (RNG)
  • Salesforce (CRM)
  • Cisco (CSCO)
  • Verint Systems (VRNT)
  • Avaya (AVYA)
  • NICE (NICE)
  • Vonage (VG)
  • MessageBird
  • Plivo

Twilio operates at the intersection of many markets: cloud, software, communications, telecom, customer relationship management, and more.

Therefore, Twilio’s competitors depend on the level of your focus. If you zoom out far enough, you’ll see FAAMG stockslike Amazon, Microsoft, and Google.

Twilio Stock Forecast: Risks

Twilio has an eyebrow-searing 13x price-to-sales ratio, which is below its five year average of 16.35, and well below its maximum of 36.92.

High PS ratios are normal for industry-leading software firms, but 30x sales is quite the premium.

The threat of rising interest rates typically causes high-flying tech stocks to fall first — and fall fast.

However, the consequences of these macro trends aren’t unique to Twilio.

Twilio Stock Allocation in Your Portfolio

Consider the following questions when deciding on the right amount of Twilio stock to buy, if any:

  • Has pandemic-fueled digitization caused Twilio to grow too fast (in relation to quarterly guidance)?
  • Can the company effectively transition following the departure of its Chief Product Officer?
  • Will the acquisition of Segment create additional shareholder value?
  • Are there other letter-as-a-service companies with more upside?
  • Are less risky investments like the S&P 500 (VOO), Nasdaq-100 (QQQ), and bitcoin more conducive for your portfolio?
  • Will FAAMG companies provide communication tools that limit Twilio’s market share?
  • Will rising interest rates cause shares in high-growth companies like Twilio to fall?
  • Are thematic ETFsin thefinancial technology, blockchain, or biotech space better investments?

This thought exercise intends to evaluate macro trends, company-specific news, and alternatives investments unrelated to Twilio.

Twilio Stock Forecast: FAQs

Is Twilio stock overvalued?

Twilio stock’s valuation metrics are very high, even for a high-growth SaaS company. Some investors are waiting to buy Twilio stock after its current valuation gets trimmed.

Is Twilio stock a buy?

Salesforce certainly thinks Twilio stock is a buy — it recently invested another $40 million in TWLO. Shares in Twilio are up a few thousand percent since its IPO but down about 20% in the last year.

Bottom Line: Twilio Stock Forecast & Analysis

Twilio dominates a niche market, prioritizes developers, and has a stamp of approval from the likes of Amazon and Salesforce.

You’ll have to pay a premium to own shares at its current valuation, but the future of TWLO looks promising.

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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Twilio (TWLO) stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.