Company Reports

With its cloud native communication platform as a service, or CPaaS, we think Twilio is well on its way to unlocking the power of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communication infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure, which could be moatworthy. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. These acquisitions, however, have eroded returns. We believe Twilio is a CPaaS leader, and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

Twilio reported strong second-quarter results, featuring meaningful upside against both our revenue and profitability expectations. However, despite a multitude of positive indicators and signs of momentum, management tightened its revenue guidance downward. Given the size of quarterly beats over the last several quarters, we think this level of conservatism borders on excessive. Still, profitability guidance was raised higher. We see continued progress on a variety of fronts, including margins, Segment performance, and product innovation. We are maintaining our $68 fair value estimate and see some upside for the stock, but we prefer our moatier companies during this cautious macro environment.

We are downgrading our moat rating for Twilio to none, from narrow. We still believe the company benefits from high switching costs among its existing customer base on its Application Programming Interfaces, or APIs, and applications, while its super network business benefits from both switching costs and a network effect. However, the company has not historically generated returns that have exceeded its cost of capital, nor do we expect it to throughout the next five years, which precludes us from assigning the company with a narrow moat rating. We maintain our $68 fair value estimate, as the moat downgrade does not materially affect our long-term profitability assumptions. Shares appear modestly undervalued today.

With its cloud native communication platform as a service, or CPaaS, we think Twilio is well on its way to unlocking the power of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communication infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure, which could be moatworthy. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. These acquisitions, however, have eroded returns. We believe Twilio is a CPaaS leader, and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

We are lowering our fair value estimate for narrow-moat Twilio after the company reported better-than-expected first-quarter results and mixed guidance. We have lowered our growth estimates slightly over the next several years, as we would like to see the company deliver top-line results more consistently in both business units while slightly raising our margin profile. We cut our fair value estimate to $68 per share from $73. We continue to adjust our long-term financial model given the information from Twilio’s strategic review from March 2024 and its progress milestones. We expect the next year or so to be a series of fits and starts as the company balances margin improvements with strategic growth investments and plows capital into buybacks. We see shares as fairly valued.

With its cloud native communication platform as a service, or Kpas, we think Twilio is well on its way to unlocking the power of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communication infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure and has established a narrow moat. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. We believe Twilio is a caps leader, and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

We are maintaining our fair value estimate of $73 per share after Twilio announced the results of its strategic review and initiated its 2024 outlook. In short, Twilio will keep its Segment business, introduced Thomas Wyatt as the president of the segment business, announced an additional $2 billion stock buyback, offered solid guidance for 2024, and presented a profitability target for 2025. While these are important steps in the company’s ongoing restructuring efforts, execution will be paramount. In particular, we think segment is immature and will require investment, which runs counter to the margin expansion targets laid out by the company. Overall, we welcome the clarity and see some value in the shares for patient investors, but we still see the road as long and challenging.

With its cloud native communication platform as a service, or Kpas, we think Twilio is well on its way to unlocking the power of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communication infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure and has established a narrow moat. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. We believe Twilio is a caps leader, and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

Narrow-moat Twilio reported strong fourth-quarter results with both revenue and profitability handily exceeding our expectations. Guidance for the first quarter is just below our revenue expectations, but easily surpasses our profitability expectations. We think the market is overreacting to the disappointing revenue guidance and not fully appreciating near-term profitability hindering measures taken now in order to lower overall stock-based compensation over the long term. When considering prudent operating decisions that should increase future profit margins, the continued momentum of its communications unit, and the time value of money, we raise our fair value estimate to $73 per share from $64 and view shares as fairly valued.

Narrow-moat Twilio announced on Jan. 8, 2024, that its co-founder and CEO, Jeff Lawson, was stepping down and that Khozema Shipchandler was appointed as the new CEO and is joining the board of directors. The company also announced that it expects results for the fourth quarter of 2023 for both revenue and non-GAAP operating income to exceed the high end of guidance ranges provided on Nov. 8, 2023. While we normally do not like to see leadership changes, we see Shipchandler as a natural choice to lead Twilio in a post-COVID-19 world, and we do not expect any immediate impact to the firm's moat. We are maintaining our fair value estimate of $64 per share, and we view shares as slightly overvalued.

Narrow-moat Twilio reported strong third-quarter results with both revenue and profitability materially above our expectations. Guidance for the fourth quarter met our expectations for revenue and was a bit ahead of our profitability forecast as previous restructuring measures are paying dividends. We expect revenue to remain subdued as Twilio’s customers undertake internal cost-saving measures as a result of the macro environment. Based on results and guidance, we have made minor near-term adjustments to our model and are maintaining our fair value estimate of $64 per share. Shares popped to about $60 per share as of writing, and we view shares as fairly valued.

Narrow-moat Twilio reported blowout second-quarter results with both revenue and profitability well-ahead of our expectations. Guidance was mixed with immediate near-term pressure arising from a change to 10DLC messaging rules, while non-GAAP operating profit is tracking ahead of management’s prior outlook. We see green shoots with continued maturation of the specialized salesforce for data and applications, where management characterized the pipeline as robust and bookings showing good momentum. We are also encouraged by stabilization in messaging volumes. Recent restructuring actions are clearly bearing fruit, as profitability was strong, and large deals are still being won. Based on results and guidance, we raised our profitability estimates and are therefore raising our fair value estimate to $64 per share, from $56 previously. We view shares as fairly valued at present levels.

With its cloud native communications platform as a service, or CPaaS, we think Twilio is well on its way to unlocking the power of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communications infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure and has established a narrow moat. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. We believe that Twilio is a CPaaS leader and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

Narrow-moat Twilio reported solid results with good revenue and strong profitability. However, guidance for the second quarter, while only slightly below our model on profitability, was materially below on revenue. Macro pressures are hurting more than anticipated, while the new sales team for data and applications is not fully ramped, and the disposition of the Internet of Things business is an incremental modest headwind. On the positive side, recent restructuring actions are already bearing fruit, as profitability was strong, and large deals are still being won. We are significantly reducing our growth estimates throughout our model, and as a result, are cutting our fair value estimate to $56 per share, from $95 previously. We think the stock remains a work in progress with the timing of growth acceleration a moving target, and we therefore prefer our wide-moat names currently.

With its cloud native communications platform as a service, or CPaaS, we think Twilio is well on its way to unlocking the power of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communications infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure and has established a narrow moat. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. We believe that Twilio is a CPaaS leader and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

Narrow-moat Twilio reported meaningful upside on the top and bottom lines for its fourth quarter, provided strong profitability guidance for 2023, and announced a $1 billion stock buyback, with $500 million occurring in the next six months. The firm dropped other news as well, including an additional 17% head count reduction on top of the 11% cut made last year, and a new business structure for the communications unit and the data and applications (formerly referred to as software) unit, both with new business leaders. We were already contemplating meaningful margin improvements over the next five years and see no change to our long-term outlook; therefore, we are maintaining our fair value estimate of $95 per share. We see the shares as undervalued but prefer some of our wide-moat names based on our concerns about the macroenvironment.

With its cloud native communications platform as a service, or CPaaS, we think Twilio is well on its way to unlocking the power of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communications infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure and has established a narrow moat. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. We believe that Twilio is a CPaaS leader and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

Narrow-moat Twilio reported third-quarter results in conjunction with its analyst day. Results were generally solid from revenue and profitability perspectives, while the fourth-quarter outlook was meaningfully below our revenue estimate and below our profitability estimate, as well. Between macro pressures and lower-than-expected guidance, we are cutting our fair value estimate to $95 per share, from $140 previously. We see cracks in the thesis that are certainly fixable, including the recent shut down portions of Zipwhip after acquiring the company for $840 million in 2021; a material headcount reduction that seemingly has no impact on previously issued profitability guidance for 2023; refusing political campaign text messaging, which normally provides a revenue bump in the fall; a lack of profitability despite what will likely be about $3.8 billion in revenue this year; and changes in the company’s go-to-market motion. Despite the upside our model shows for the stock, we would avoid it for now given the heightened near-term risk.

With its cloud native communication platform as a service, or CPaaS, we think Twilio is well on its way to unlocking the imagination of software builders. Twilio’s portfolio of application programming interfaces, or APIs, and ready-made solutions allow software developers to build a communication infrastructure to meet the unique needs of virtually any organization. As organizations have fully embraced the notion that existing clients are the most critical channel from which to generate new revenue, we think Twilio enjoys critical infrastructure and has established a narrow moat. Through extensive innovation efforts and strategic acquisitions, the firm has expanded its portfolio, paving the way for what we think will be robust growth over an extended period. We believe Twilio is a CPaaS leader, and will remain as such for years to come, and that returns will improve as the company scales and applications grow within the mix.

We are lowering our fair value estimate for Twilio to $140 per share, from $170 previously after the company reported strong results but offered a muted outlook for the third quarter. Like for most of our coverage, we view the stock as attractive. Demand remains robust, with limited pockets of weakness and no significant signs of a recessionary environment. While profitability within the quarter was better than we anticipated, it is worse than we expected for the third quarter. Persistently strong messaging is a great sign for new business growth but leaves us more cautious on margins over the medium term. We see gross margins expanding over time as Flex, Engage, and Segment grow within the mix, but we ultimately expect Twilio to offer a lower margin profile than many other enterprise companies. To its credit, management is increasingly focused on profitability and reiterated its goal for positive non-GAAP operating margins in 2023.