Should I Invest in Twilio?

Is It Time For Investors To Buy Shares In Twilio?

The stock market has soured on one of its favorite children, Twilio, after the cloud communications platform sank due to earnings concerns.

Last week, the cloud communications specialist saw its stock price plunge to a five-month low as investors got skittish following its Q3 earnings. 

After a brief reprieve on Friday though, is it safe to say that investors jumped the gun?

How did Twilio do in Q3?

All considered, it was actually a pretty good quarter, with Twilio (NYSE: TWLO) continuing to grow year after year. 

  • Revenue: $740.2 million, up 65% year-over-year (YoY). 
  • Adjusted Net Income: $0.01 per share, down 75% YoY, but still beat estimates. 
  • Active Customer Accounts: 250,000, up from 208,000 a year ago. 
  • Q4 Projections: Revenue growth of 39% to 40% — surpassing 36% expected by analysts. 

Ok, some ups and downs, but what caused last week’s big dip? 

Probably the fact that its net loss widened from $116.9 million to $224.1 million due to COVID-19 costs and marketing? Or the announced departure of COO George Hu, who has been critical to its success. Or that it continues to rely on stock-based compensation to subsidize its salaries and fund acquisitions. This has led to a huge dilution of shares in recent years, ending the third quarter with 177.2 million weighted average shares outstanding, compared to just 86.1 million shares at the end of 2016. 

And then there’s its continued reliance on acquisitions to boost its user numbers, having purchased 10 companies in the last six years — including Segment for $3.2 billion in 2020.

So how does Twilio kick on from here? 

Just look at those revenue figures. Twilio might be going through a rough patch, but don’t forget that it’s still in growth mode, which comes with risk. With its revenue increasing at a CAGR of roughly 22%, it remains a solid, albeit volatile, investment.