TWLO Stock: Twilio Inc A Tempting But Risky Bet For Now

  • Despite a major correction, TWLO stock valuations are steep right now.
  • The market is ripe for tremendous growth on the back of cloud adoption.
  • But is now the best time to invest in this promising company?

The Twilio (NYSE:TWLO) IPO was one of the successful IPO stories of this year, but unfortunately, things got overheated in the process, and the success story of the year turned out to be one of the saddest stories of the year, with the stock losing nearly half of its value from its peak of $70.96, in a span of two months. The cloud industry showed staggering growth in the last few years - led by Amazon and Microsoft, growing at a handsome above 50%+, and cloud based solutions are more important now than ever before. Twilio concentrates on the communications side, allowing developers to build apps for Voice, Video, Messaging and Authentication, tools that are extremely important for any business entity vis-a-vis their customers. Twilio is an attractive company, but should you buy TWLO stock now?

The Perfect Product Portfolio For A Cloud-Reliant World

Though Twilio’s products are something that a developer would understand better than an investor, their idea so far has been very simple: make it easier for technology teams around the world to build and launch applications that leverage cloud-based delivery systems.

Take their messaging application, for example. If you are a startup selling T-shirts in the United States or a restaurant chain opening more and more domestic stores, and you wanted to have a robust messaging service that would allow you to communicate back and forth with your customers. Maybe throw in a toll free number for people to call you - setting up the technology backbone would have taken you weeks, if not months. And once that is done, you also have to keep maintaining the infrastructure.

Also Read: Nutanix Inc: Is This The Time To Buy NTNX Stock?

Enter Twilio, where all you have to do is to sign up to their messaging service. You can use local country phone numbers if your clients are all over the world, you can have your toll free number and even store all the messages so that you can data-mine them whenever you need. And for all of this, you only pay a monthly fee under a Software-as-a-Service model.

Salesforce did the same thing in the CRM industry when they started off. Though a direct comparison would be wrong, as Salesforce operates on the business management software side, the idea is essentially the same - SaaS that can make life easier for companies. Twilio is operating in a niche, which puts them in an ideal position to capture the mass movement of companies into the cloud-based world.

From a product standpoint, though it is still early days, Twilio solves a key problem for the customer. And they are doing so in a particular area - communications and authentication - that will bode well for the company's future. So, it’s not really a surprise that they name Coca-Cola, Home Depot and Uber in their client list, all of which are companies that need to stay in touch with their customers 24/7/365.

What’s the Forecast for Twilio?

Twilio will be adding more and more products to its lineup, while retaining its position as a communications platform. Though their products would be useful for any company, irrespective of whether they are already on the cloud infrastructure or not, I expect their growth rate to stay close to the overall growth of the cloud industry, which has been clocking above 50% growth in the last two years. Achieving double-digit growth rates should not be a huge issue for the company, as they seem to be in the right place at the right time.

According to Strategyr, the global market for Platform-as-a-Service (PaaS) is expected to reach $7.5 billion by 2020, driven by the growing popularity of “Develop Your Own Applications” (DYOA) among enterprises.

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SaaS and PaaS will continue to grow at double-digit rates, and as the first company in each industry starts using those services, their competitors would have no choice but to join the bandwagon. Since this is still in its early stages, there is plenty of growth to come. As such, it was not really a surprise that Twilio’s stock kept heading for the sun after becoming publicly listed, but then, reality struck the market, bringing valuation to more reasonable levels.

Also See: The List Of Interesting Tech IPOs

According to Twilio’s guidance the company is expecting to reach $268 to $270 million in revenues for the current fiscal. With the current market capitalization of $3.2 billion, the stock is trading at 12 times its expected sales for the current fiscal after losing nearly half of its value since September. Buying at this price point would set you off on a roller coaster ride where recovering your returns might end up taking much longer than you expect. Buying Twilio right now would be similar to buying a great product for a really bad price. The best thing to do right now is to wait and watch as things unfold in Twilio’s world. This is NOT a flash-in-the-pan opportunity that will easily slip through your hands if you don’t act now. It’s going to be a long period of consistent growth, but right at this moment, buying in might not be the best tactical move.

Looking for great tech stocks? Check out Amigobulls' top tech stock picks, which have beaten the NASDAQ by over 111%.

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  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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