Twilio: Coronavirus Is Near-Term Speed Bump, Not Long-Term Crisis

Summary

• Twilio's share price has come down fairly steeply in the last few months in concert with other software as a service businesses.
• As a 'toll taker on the digital services economy', Twilio will be impacted by near term service volume declines.
• The long-term picture continues to remain solid for the business and investors will be well advised to look past short-term issues.

Twilio's (NYSE:TWLO) share price has come down fairly steeply in the last few months in concert with other software as a service businesses.

The business has fallen from the recent highs from near $128 and now trades in the $90 range as investors reassess the company's near term prospects amongst concern that the usage of Twilio services will experience a fairly sharp deceleration in the near term.

This makes some rational sense in the context of the business that Twilio provides and the type of customers that it supports.

Near term coronavirus impacts will be meaningful

Twilio's communication platform as a service provides the API capabilities for application developers to embed core voice and text functionality to enable communications for various application developers and service providers that are using Twilio's platform.

A significant volume of Twilio's usage comes from very common daily use cases which have now effectively been shut down as a result of the coronavirus pandemic, and the consequential movement restrictions that have been placed across a large proportion of the population who are now in lockdown.

Some very common use cases which drove significant volume for Twilio included such things as receiving text confirmations from a restaurant application once a dinner reservation has been made as well as being able to click to call customer service from an airline reservation application. With restaurant dining having effectively ground to a halt, and airline usage now at a temporary standstill, it can be seen how Twilio's near term usage and monetization will be impacted as a result of the 'coronacrisis'.

Twilio also counts large customers in the ridesharing vertical, with Uber (UBER) accounting for close to 5% of revenue in recent quarters. While Twilio's dependence on Uber has declined in recent times, Uber's pronounced decline in ridesharing activity over recent weeks

Analyst’s Disclosure:I am/we are long TWLO. 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.