Twilio: Why Haven't You Sold Already?

| About: Twilio (TWLO)
This article is now exclusive for PRO subscribers.


Twilio proposed a secondary offering of $400 million led primarily by selling shareholders.

The valuation of the company is now $6 billion based on the fully diluted share count while revenue expectations are only $255 million.

Investors should not buy from insiders dumping shares at inflated valuations.

After the close on a Friday, Twilio (NYSE:TWLO) snuck out a proposed secondary despite only completing an IPO about four months ago. The communications software provider has seen the stock rocket since going public.

Source: Twilio presentation

The move follows the recent pricing of the Acacia Communications (NASDAQ:ACIA) secondary that didn't end well for shareholders on Friday. Similar to Acacia, the question is why anybody still owns the stock after the big post-IPO rally.

Twilio has produced robust results with Q2 base-revenue up 84% YoY. The company, though, only forecast revenues reaching $255 million for the year.

Even down roughly $10 from the highs, Twilio is worth over $6 billion with the stock trading around $60. The company priced the IPO down at $15 in June, up from a targeted range of $12-14. The stock is up 300% from the IPO price.

Though most financial websites list a market valuation of around $5 billion, Twilio actually has over 100 million shares outstanding when including over 16 million outstanding stock options.

Source: Twilio S-1

The registration statement only provides an offering amount of $400 million with Twilio selling $50 million worth of stock. A key point being that the company is getting early approval to sell the shares prior to the original 180-day lock-up period.

The selling shareholder data isn't filled out in the S-1 yet, but the selling shareholders control far in excess of the 6 million shares up for sale here. This proposed offering will surely be followed by additional offerings assuming the stock price holds.

Source: Twilio S-1

Investors doubting the merits of selling a hot IPO with fast-growing revenues where the insiders are dumping shares need look no further than my analysis on Fitbit (NYSE:FIT). The stock was trading at $40 and the company priced a secondary at $29 during a strong holiday quarter. Most of the comments fought against my thesis, but the stock quickly collapsed below $12.

The key investor takeaway is that no reason exists to own a stock trading at over 20x revenues when the insiders are unloading shares early. Twilio will be an even better stock to own at lower prices.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.