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Twilio 2.0 Starts Now, Don't Miss The Train

Nov. 01, 2021 5:24 PM ETTwilio Inc. (TWLO)93 Comments


  • Twilio announced its Q3 2021 results last week and the stock got punished with a steep drop.
  • I see a lot of "explaniorism" the desperate need to explain price drops and find what looks like fundamental reasons but give elements that are essentially noisy.
  • We look at the so-called red flags: the COO leaving, lower organic revenue, lower EPS guidance and lower revenue growth for the next years.
  • Twilio is transforming itself completely and is becoming Twilio 2.0. It has even written a new mission statement.
  • Twilio Engage could be a real gamechanger and the more privacy rules (Apple's IDFA, for example) the better for Engage. The future looks bright.
  • This idea was discussed in more depth with members of my private investing community, Potential Multibaggers. Learn More »
TechCrunch Disrupt SF 2016 - Day 1

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Last Wednesday, Twilio (NYSE:TWLO) reported its Q3 2021 earnings despite another beat-beat-raise quarter, the stock price dropped like a rock, down 19% from its Wednesday opening price.

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        This article was written by

        From Growth to Value profile picture

        From Growth To Value is an individual investor with a long-term perspective. He targets high-quality disruptive businesses who have early multibagger potential. His rigorous research process provides him and his readers conviction in these companies.

        He invests personally in the ideas he shares and leads the investing group Potential Multibaggers. Features of the service include: best buy list, access to his personal portfolio and watchlist, 5+ articles of individual stock coverage, weekly review regular webinars, overall quality scores, and a vibrant chat for discussions. Learn more.

        Analyst’s Disclosure: I/we have a beneficial long position in the shares of CRM SHOP TTD TWLO ZM either through stock ownership, options, or other derivatives. 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.

        Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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        Comments (93)

        Twilio is a disaster on the decline. What a nightmare the last 3-weeks have been as it lost 1/3 of its value.
        From Growth to Value profile picture
        I'm not a trader but a long-term investor. The more it goes down, the better for me.
        @From Growth to Value new all time low!!! This is great news right!?
        From Growth to Value profile picture
        @Let The Led Out
        Could you please stop trolling all my articles?
        Get a life, man (I'm sure you are a man, women are smarter than that and yes, I'm a man).
        Ventureshadow profile picture
        This stock is in a downtrend coming off a peak. Charts suggest it will continue falling until $250. It might not stop there but that is a potential stopping point. I try to fight FOMO by resolving not to buy falling stocks.
        From Growth to Value profile picture
        To each his own. Personally, I don't believe in chart reading. I have read several trading books, but I see a lot of astrological beliefs that you just have to assume are true. I'm keeping an open mind, though. If chart reading would be successful, people could simply make money by following the rules. But there are so many opaque rules that you can explain everything. That's just my opinion and I'm extremely open to what people do. Everyone has his or her own situation, background and time horizon.
        Ventureshadow profile picture
        @From Growth to Value If momentum means something then charting has predictive value. Both SA and Value Line use momentum strongly in their evaluations and claim great but not perfect success. Both claim that simply following their ratings (i.e., their rules) is profitable.

        Rising vs falling, bollinger bands, changes in daily stock volumes, and commitment of traders charts have proven predictive value. The predictive value of charting is limited but definite, and it is not like astrology.

        Some people take charting to extremes beyond credibility. It can become excessively complexified. This does not discredit everything about charting. I do not consider myself a chartist but I sure study charts before buying and selling.
        Good commentary into a company that is harder to understand, since it is not consumer facing. Thank you.
        Edward Strover profile picture
        Thanks for an interesting article. Agree with you that it's impossible to know what valuation the market will assign to a company on any given day and impossible to know which algos are programmed to sell on a CXO resignation or a slowdown in organic growth.
        What's not in data is corporate culture and understanding the opportunities being taken by management. Your story of how Segment went from disinterested to joining Twilio is fascinating. Jeff Bezos has said that he wasn't much interested in people's reaction to quarterly results because they were the result of decisions taken 2-3 years prior. Let's see how the other two Jeffs do in 2-3 years time.
        Peled111 profile picture
        Great article
        Twlo is a buy
        Thank you
        From Growth to Value profile picture
        Thank you for reading and your kind words!
        @From Growth to Value thanks so much for the informative write-up. I tend to be a value oriented investor mostly due to the lack of time to research and understand/project trajectory for growth companies. Generally, for example in the tech space I prefer to own funds and let the experts help me in this area. Twilio is an exception for me - it is one of the few the growth companies where I own shares directly because the value of what they can offer to their customers is very compelling - and they're demonstrating an ability to scale. I saw this market reaction as an opportunity. Really appreciate you fleshing out what the Segment acquisition means for Twilio.

        Off topic a bit here - regarding your comment "
        That initial sell-off can trigger stop-losses, which makes that the stock price often go down even more"

        I use stop losses as what I could best describe as a hedge against meaningful corrections - understanding there is risk of orders not triggering near market close. Also accept that sometimes I'll sell out of a holding prematurely. I'm curious as to your thoughts around this strategy as I've seen mixed opinions? thank you again.
        From Growth to Value profile picture
        Hi and thank you for your very generous comment. I'm glad that you like the article.

        As for your second question: I never use stop-losses. I see stop-losses as something for more short-term-oriented investors and I'm a long-term investor. I know my holdings so well that I don't mind the volatility as long as I see that the initial thesis is intact.

        The price says nothing about the value of a company. Or actually, it does, but over the longer term. I don't time, I just dollar-cost-average into positions slowly (6 months to 18 months usually). But this is typically something that I think everybody has to decide for themself, as everyone has a different personality and situation.

        All the best
        From Growth To Value
        @From Growth to Value Can't argue at all with your logic and greatly appreciate your perspective. Clarifying the strategy a bit - I wouldn't likely deploy this strategy under a different environment. I want to stay invested in a time where valuations are at all time highs. No one can predict exactly when a correction will occur, but there are many reasons to have caution with market setting all time highs daily, rising inflation, FED tapering strategy, rising interest rate expectations, etc. Under this environment the approach protects much of the realized growth in my portfolio - and when/if there is a meaningful correction I'll be sitting on considerable cash position to re-enter at lows. This is particularly important to me due to my proximity to retirement which is in an 18 month window.
        From Growth to Value profile picture
        There you have it. That last sentence is very important! Every situation is different.
        One of TWLO's closest competitors, VG reported API business grew 43%, DBNR rate 129%. CPaaS is still growing, the next three years growing 30+% is very doable.
        From Growth to Value profile picture
        @John W in IT
        Yeah, I agree. I think it will be quite a bit higher, actually. And then on top comes the non-organic revenue.
        @Persaltish This Community does not mind opposite views, we actually encourage debate as it makes us revisit the data and recheck our convictions. Not reading an article and making a comment is stupid unless you are a prophet.

        I took the time to read some of your reviews, you have been a member since 2008 and most of your reviews are negative, hopefully, your investment portfolio is not as well. You suddenly got active and commented a lot in the last week or so???.

        If you don't like the share unsubscribe from the alerts and save yourself the anguish of not reading an article you don't like and spend time on the ones you do.

        Only one last comment is that you incorrectly meant you "agree", well that also doesn't add up if you didn't read the article. Move along or add to the conversation.

        On the funny side: Disclosure: I/we have a beneficial long position in the shares of CRM SHOP TTD TWLO either through stock ownership, options, or other derivatives. I wrote this COMMENT myself, and it expresses my own opinions. I am not receiving compensation for it (other than from MY WIFE. I have no business relationship with any company whose stock is mentioned in this article.
        From Growth to Value profile picture
        Haha, thank you for comment, Arnold, and that really funny last part!
        @From Growth to Value I love to laugh at people who arent ... well he said enough on his own
        Thanks, I'll buy back tomorrow.
        Lots of things I didn't understand about this missive!!!
        But if I picked up something, it's that yearly sales are around 2.6 b and the stock has a market cap of 54 b. That's, what 20x sales!!!
        The last quarter, sales increase were less than the previous quarters...
        One of these days, all these companies that sell for more than 3x sales are going to implode...
        They are all fighting for the same dollar under the Kool Aid drink called ' the internet of things '...
        One more point,
        Every time I hear the words ' customer service ' I want to scream!!!
        When I buy something whether an item or a service, I only want it to work once it is set up!!!
        Telling me that you have ' great customer service ' just means that I shall have to call you often: and I don't want that... I don't even want to know you exist!!! I just want things to work, like you promised...
        If it's not ready for prime time get it fixed first then tell me why I should buy what you are selling...
        Anyway, according to my voodoo chart: it says 150 is the next stop...
        From Growth to Value profile picture
        When I don't understand something, I read it again until I do but I'm not commenting randomly. Twilio offers customer service technology, that makes it easier for companies to explain their product in case you read the manual like you read this article. :-)
        "More than 3x sales going to implode" That really made me laugh. I think the humor of such remarks is generally underappreciated.
        @From Growth to Value very astute observation. Definitely made me laugh too!
        I think c. Wood bought at 310 sth a quarter ago
        Nice article! One of the best I read for TWLO
        I agree with you about TWLO but I judge from some other perspectives.
        1) In essence, what does TWLO do and what problem it solves and what value it creates for society.
        In essence, TWLO connects the corporation to customer. For example, google connects people to information. Facebook connects people to people. TWLO connects corporation to customer. And customer is most important asset for any company, so from any perspective or just instinct, this is really a huge and fundamental / core area for any company, large or small.

        2) I indeed have concern to Segment, it is a new industry, meaning it is a difficult to solve problem, if easy, there should be already lots of companies working on it.
        But there is potential for Segment. On TWLO's platform, if company A can only get user data transacted with company A, then this is not that powerful. But if company A can get user data collected from that user's transaction with other companies and use that data to target users, then TWLO as a platform can become huge, similar to FB which has all kinds of users data.

        3) The key to any growth company is the dynamic moat - whether the company can continuously innovate and adapt to changing environment. It also means whether the company can find the 2nd growth curve before its main growth driver slow down.
        The key to achieve the dynamic moat is the company must have the culture to constantly listen to and pay attention to user's needs, and build features and continuously evolve the features based on customer's (unmet) needs, which is exactly what TWLO does from CEO's words.
        And Jeff's day one attitude also helps its dynamic moats.

        It may not a ten-bagger, but definitely worth the bet considering its low valuation now.

        I see too many people focus on the profit, actually the profit is the least important thing (even though TWLO's gross margin is in the low end).
        As long as the company can continuously create crazy value to the society and make the whole society more prosperous and benefit everyone's life, the profit will follow, sooner or later.
        From Growth to Value profile picture
        Thank you for reading and your interesting thoughts.
        Persaltish profile picture
        I haven't read the article but I disagree with everything in it.
        From Growth to Value profile picture
        wow, what an open mind! Congratulations!
        I looked up your post in the reverse dictionary - it said Mute-Worthy. If you're not going to contribute, why would we bother reading you comment?
        Prudent Top Sawyer profile picture
        Twlo was always loss making now it is busted growth. Forsee a price of 20$ at best in a year or 2. So s
        @Prudent Top Sawyer When entire companies information warehouses sit in Segment repositories and they operate based on custom analytics reports from Segment and their communication systems use Twilio, especially with the trend towards remote/virtual organizations, Twilio is smart for going after market share vs profitability. They will easily have pricing power later.
        From Growth to Value profile picture
        @Prudent Top Sawyer
        hahaha! You're really funny! Why not $2?
        I am a Chief Information Officer at a small-to-mid-sized tech/media company. We've been users of Twilio and Segment since before the acquisition, which I was thrilled about when I heard the news. Segment has so many advantages over other analytics platforms (and works with AWS Redshift). If there are smart, they will also acquire Mode and round-out their portfolio. I initiated a new position today because this article made me aware of the price drop. Years from now, I see AWS buying Twilio since both have very modular/API/tool-based platforms and philosophies. We will see.
        From Growth to Value profile picture
        Thank you for your comment. It would be a huge acquisition, especially if you talk about years out. $200B? I don't see it happening. Jeff Lawson has an AWS past (one of the first to work there) but I think he's too stubborn to work for someone else. :-)

        Nice summary! Now, apply some financial concepts to exactly what you're saying ...and I've been saying, too :)

        IF (if = execution risk) TWLO can accomplish what you write, it moves from a no margin API/CPaaS business to a CRM SaaS business. Use the DBNNR (most recent is 131%) and create some estimate of future "new" revenues to model SaaS... then apply a SaaS margin (not a zero or negative API/CPaaS one) like a mix of Adobe and Salesforce for CRM SaaS and apply a P/E (not a P/S) to it.

        IF TWLO can pivot to SaaS then TWLO can explode (and prove wrong all those that are stuck with "Buy BAND or Vonage for better valuations" or "TWLO can't keep that P/S into the future", etc.).
        From Growth to Value profile picture
        Twilio could be profitable if it wanted. It invests in growth, exactly what you should do in such a market. It's like AWS: investors were not happy with it because it was so expensive to build. Look at it now. Twilio is following that path. Don't forget that Jeff Lawson was hired at AWS when the project was still a secret project in Amazon. He knows what he's doing. P/Es are completely worthless for growth companies. If you bought based on P/E ratios, you would have missed all FAANG stocks, maybe with the exception of Apple in the last few years.
        @From Growth to Value
        Using P/E is appropriate for a SaaS company that has sufficient earnings. TWLO isn't that yet (so not yet appropriate to use P/E), but if one wants to attempt to see where this goes in the future, that's IMO the way to do it. Not, like many are doing, using current P/S and claiming that revenues must be some ungodly high amount in 2025 for example.
        From Growth to Value profile picture
        I think gross profits/sales will learn you much more than PE at any point for growth.
        B00timer profile picture
        Good article, I have a better understanding of TWLO's business and prospects.
        From Growth to Value profile picture
        Thank you for your compliment!
        DJHLS profile picture
        I think the red flag or at least yellow flag is that the costs of revenue are rising proportional to the revenue. You would expect that higher revenue increases profitablitiy due to sclae effects.

        If You don't see scale effects revenue growth isn't really meaningful.The main question is, why You don't see the scale effects.
        From Growth to Value profile picture
        The cost of revenue as a % of revenue has been between 45% and 50% since 2013 (on an annual basis). So, it has not really gone up. One of the reasons is that the acquisitions ask for integration costs. You are right that it's something to watch, revenue growth should be put in context. At this moment Twilio prioritizes high growth and I'm happy with that.
        You are rear view mirror looking at an API/CPaaS company.
        You should forward look at a SaaS company. Understand the vision.
        DJHLS profile picture
        @canyon May be You have any substantial arguments instead of vilifications? If so tell please tell us more about Your visions.
        "I have a strong suspicion that there are trading algorithms that have as one of their rules "CXO is leaving = selling" - HaHaHa :)
        Agree with you overall (for this one :)), good company at a fair price (now), impressive growth (still).
        Though I'm not that much enthusiastic about their Engage:
        - I can't see synergies with their core CPaaS
        - The CRM market is much more fragmented. Even for B2C, I'm not sure about their bragging of "revolutionary". For ex. I've been receiving for years now personalized ads either by mail (SMS is NOT a good option btw, I hate that), or different banner / alerts in different sites / apps (eg. Yahoo Mail), and I'm pretty sure these were not based on "teams of data scientists interpreting data signals", but it was also automatic (some 3rd party app took the data and matched it with vendor's ads)
        Thanks and good luck!
        From Growth to Value profile picture
        Thank you.
        As for Engage: I see a lot of overlap. Which other company can couple the insights with direct communication in the way Twilio can? I think you go from Twilio's legacy business (SMS) but the company has all solutions. And it's exactly the opposite from a third-party app taking your data. I'll give an example. I often buy 501 jeans in an online shop. That shop has my first-party data. Maybe a new color of 501 jeans comes out. They can contact me with that specific information. They could also start seeing patterns in my behavior. For example: I buy a new pair of jeans every 8 months on average. They can then give me all of the jeans available in my size (I'm quite tall). This is a simple example, but I think it shows how this goes. It's not the usual junk, it's personalized based on your real needs and desires.
        @From Growth to Value
        1. "Which other company can couple the insights with direct communication in the way Twilio can?"
        Not sure if it does not matter - overly simplistic, a developer would have in an app something like this:
        IF GetDataForCustomer(each customer in my database) = "501 jeans" THEN
        SendAdByMail(that customer, "501Jeans")
        Now, if the first line (that IF) comes from Twilio API (the 2nd line suppose is from TWLO) or from another party, it does not matter for the developer. Maybe (maybe), I could see for that company a cost reduction, it doesn't have to pay 2 API providers (TWLO and 3rd party), but only TWLO, although pretty sure that IF will add up to the price they will pay to TWLO.
        2. Yes, it's exactly the same right now (I think), without Engage (but with other apps) - that shop will see that I buy 501 jeans once per year, and they are sending me once per year an ad to buy 501 jeans. I also think that those other apps (digital ad specialized apps, I don't have an exact one in my mind right now, maybe $TBLA) can insert some banners / alerts in some of my apps, like Yahoo Mail. So...what's new with Engage?
        From Growth to Value profile picture
        I totally agree that my example is overly simplistic. My point is that Engage can give much richer data and a lot companies are using Twilio already for direct communication. You still see it too much from 3rd-party data and too much from 'ads', I think. This is about creating a personal bond with a few brands you really like, not about being spammed.
        WayneCDN1876 profile picture
        I would never invest in a company like Twilio, but, damn, that was a great trade to buy at $280.00
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