Understanding Twilio

Mar. 20, 2019 10:29 PM ETTwilio Inc. (TWLO)ERIC131 Comments

Summary

  • Articles on Twilio usually fail at describing exactly what the company sells and why customers buy it.
  • Understanding the nature of the business has significant consequences for understanding its prospects.
  • This article both explains the business and draws the obvious conclusion regarding resulting economics.
  • This idea was discussed in more depth with members of my private investing community, Idea Generator. Start your free trial today »

Twilio (NYSE:TWLO) has a poorly understood business model. It's thought of as a disrupting CPaaS (Communications Platform as a Service) that's driving a new paradigm through the provision of programmatic communications, available through an API. As a result of this, Twilio is bundled with other IaaS/PaaS providers like Amazon.com's (AMZN) AWS, Google's (GOOG) Cloud Services, Microsoft's (MSFT) Azure, Salesforce.com (CRM), etc. In this article, I'll show that what Twilio actually sells and its customers actually seek is something much more prosaic, dictated by a very specific issue. This understanding of the company has significant negative implications for its prospects and valuation.

One of the things which struck me the most was how neither other articles nor Twilio itself really fully described what the company “did for a living.” There was this underlying CPaaS (Communications Platform as a Service) “is the future” and “is going to disrupt this and that” feeling, and little thought was actually given about what Twilio sold or why customers bought it.

This lack of caring about the actual business also meant that there was little thought given to:

  • Competition and competitive dynamics
  • Pricing power

The only time where some thought was given to the nature of Twilio’s business was back in early 2017 when it started losing Uber’s (UBER) business. But even that introspection quickly faded from memory.

In this article, I’m going to do my best to highlight just what Twilio actually sells and what that implies for the company's ongoing business, profitability and growth.

Twilio’s Main Business

When it comes to overall chatter, you’ll see statements to the effect that Twilio is disrupting communications. That it is providing a unified API able to handle all kinds of communications, including voice, texting, video, email and whatever else. That it offers a virtualized communications network.

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This article was written by

Paulo Santos profile picture
23.74K Followers
Author of Idea Generator
Our goal is to beat the S&P500 and to provide consistent positive returns.

Portuguese independent trader and analyst. I have worked for both sell side (brokerage) and buy side (fund management) institutions. I've been investing professionally for around 30 years.

I have a Marketplace service here on Seeking Alpha called Idea Generator that's focused on real-time actionable ideas based on valuation and catalysts. The Idea Generator portfolio has beaten the S&P 500 by more than 51% since inception (2015).

I trade futures, stocks from the long and short side, forex and options. . I can be reached at paulo.santosATthinkfn.com.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in TWLO over 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.

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