Why This Is One Of Our Top Pick's of 2022Nov 15, 2021
If you've been following us for awhile, you know Twilio is seriously one of our top stocks.
We absolutely love this company and we do not say that too often. We first fell in love with them in 2019 and have been rewarded with 200% returns since then!
But as the graph below shows, since February the stock has been stuck in a funk and ever since their most recent earnings report, the stock is down roughly 15%
This underperformance paired with all the questions we've been receiving lately, forced us to reconsider and analyze if they were still the company we fell in love with only a few years ago.
The short answer is without a doubt 100% YES.
While many investors have not been feeling the same way, we're here to say that we strongly disagree with them.
Therefore let us tell you why we still have conviction in the company and where we believe the stock price will go.
Spoiler Alert: You're going to be pleasantly surprised.
Twilio Short Term Outlook:
So while Twilio did have a below average Q3 and put out poor guidance, the long term outlook for Twilio still has not changed.
And while the short term outlook has scared the market, we uncovered that the long term viability of the stock and growth of the company is still as clear as ever.
But let's address the elephant in the room before we move onto the long term.
During their most recent earnings call, the biggest number that stuck out to us was the slowdown in growth.
Looking at it more closely we see that it went from 50% in Q2 to 38% in Q3. We also saw that margins start to unwind slightly.
While this scared the markets, this was largely due to pandemic related tailwinds slowing down. The reason this really hurt the stock is because the slowdown in growth was open-ended. What we mean by this is that many investors translated this event as something that could exist in perpetuity.
But after analyzing their business pre-pandemic vs post-pandemic and talking to industry insiders, what we uncovered was that this should only persist until the end of 2022.
Once 2023 starts, the company said that the accelerated phase of growth could resume for their, now weakest, customer cohort. And we strongly believe it will.
Twilio Long Term Outlook:
With the largest criticism for Twilio being addressed we want to move onto why we have and continue to be so excited for the company over the next decade. It largely due to two main reasons:
- The first is that Twilio is an API*** first platform that has always been ahead of their competition. With telecommunications being such a critical part of so many industries, Twilio continues to be the leader in their API based platform helping so many others solve their use cases fast and easy. While this won't affect their growth rates today, we are still extremely confident in their unique product offering being light years ahead of the next best product.
- The second and most key reason is that their acquisitions are starting to project to be strong positive revenue centers starting in 2023. As we mentioned before, while 2022's outlook remains "bleak" (even though the company is still going to be growing over 30% - which is unreal), the next generation of their products should start to shine through via Segment & Flex in the back half of next year. With international expansion likely to slow down growth in the short term, but help in the long term, these products will help them sustain over 30% annual growth (which is the magic number for them to clear). Once fully scaled, these products are extremely high margin, further embed the stickiness of their product and should help increase LTV of each customer. Twilio is choosing to go deep rather than wide, as their product already touches so many use cases. We see this product development as the key growth catalyst behind the second generation of who Twilio will become.
The combination of their growth outlook, differentiated product and upcoming synergies with their acquisitions, should propel Twilio far ahead of every single player in their space.
***API stands for Application Programming Interface, which is basically software that allows two applications to talk to each other. So for example, every time you use an app like Instagram, send a message, or check crypto prices on your phone, you're using an API.
Twilio Business Case:
When we think of Twilio, they were first a communications enablement API company helping other companies access text, phone, email, etc. But now in their next life, Twilio is going deeper with every single client and driving not only accessibility to these channels via their API's but now they're offering deep insights and data enrichment services around those API's.
This should be the killer feature for Twilio as this technology will allow them to grab market share and hold onto it forever!
While this will take time to develop, this is closer than most people realize. Many investors think this is only 20% there but in actuality Twilio is closer to 50% there!
The next several earnings calls should allude to this success and will likely help propel the stock.
By this time next year, we greatly anticipate for Twilio to be at or above our price target as the short term headwinds will be all but over. And investors will be left staring at the their incoming dominance over the next decade!
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Current Price: $304
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Market Cap: $54B
Dividend Yield: 0%