Twilio is growing in a crowded and high-CAGR industry, but so are its competitors, so which should investors watch out for?
Twilio (NYSE: TWLO) is a cloud communications platform as a service (CPaaS) business that enables software developers to use digital communication such as calls, texts, and emails via the use of its web service APIs to enhance the user experience.
It takes care of the complex telecom hardware and exposes a globally available cloud API that developers can use to build intelligent and advanced communication systems. The business uses a usage-based pricing structure and in 2020 Twilio reported a net expansion rate of 137%. This meant that the company earned 37% more on average from existing clients than the year before, highlighting clients' love for and dependence on the business.
It looks like its competition has a lot to live up to...
Cisco
Cisco (NASDAQ: CSCO) is a $220 billion telecommunications company and has been one of the world's top networking companies for over 20 years now. It has heavily invested in research and development to shift from a hardware to a software and services company.
Cisco has pivoted towards these software-related offerings such as security, applications, and communications to stay relevant in the market and compete with the likes of Twilio. 44.5% of Twilio's customer base is small-business, whereas this is only 7.1% for Cisco as the business focuses on mid-market more. Twilio will have to stay alert, though, as Cisco has acknowledged the need for a new approach to targeting small businesses and has begun trialing marketing campaigns to do so.
Vonage
Vonage (NASDAQ: VG) (previously Nexmo) is a diversified cloud communication services provider providing cloud-based solutions by leveraging voice, text, video, data, collaboration, and more on its single platform. The company was originally operating CRM (customer relationship management) platforms before entering the cloud space by acquiring Nexmo. Its API segment is rapidly growing and saw a 33% rise in revenue in Q4 2020.
Vonage's diversification is a huge advantage and has created an ecosystem within the company's offering. For example, the company can acquire customers that want to use its advanced integrated CRM and then offer this customer communications APIs and other products as a domino effect, meaning that the customer has its communications API, CRM, virtual receptionist, and email infrastructure, and more provided by the one company.
The product is good but the financials aren't too impressive. The business saw revenue growth of just 4.4% to $323.3 million in Q4 2020 and suffered a disastrous full-year loss of $36.2 million.
Agora
Agora (NASDAQ: API), another big player in Twilio's market and well known for being the framework behind Clubhouse, offers APIs to provide real-time voice and video communication with just a few lines of code. The communications market is quickly moving towards embedded video functionality, which Agora's future-ready tech specializes in, and the business is the leader in real-time video chat APIs. Its product is quickly gaining traction too with Q4 2020 active customers growing 101% YoY to 2,095.
As this demand for embedded video functionality grows, Twilio needs to watch out for Agora as its competitor's product is the go-to for video communication APIs. Twilio is trying to combat this by providing developers with toolkits to make transitions to its products easier and the company is also doubling down on its investment in the video space.
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