UCB SATwilio has a long growth runway ahead as it continues to make strategic organic and inorganic investments to expand its platform

Business Strategy and Outlook

Twilio is a cloud-based communication-platform-as-a-service, or CPaaS, company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows developers to embed messaging, voice, and video functionality into other applications. Twilio has a long growth runway ahead as it continues to make strategic organic and inorganic investments to expand its platform. In a go-to-market model that focuses on empowering developers to utilize the APIs to rapidly build and deploy solutions, Twilio has been able to expand into use-cases that would be difficult to penetrate otherwise. For common use cases, Twilio has developed applications, like Flex Contact Center, which combine various channel APIs into a unified interface to create use-case-specific solutions.

Twilio’s platform as an incrementally value-additive technology stack, with each layer of the stack building on top of and enhancing the prior. The foundational components of the stack are the Super Network, a global network of connections to carriers that provides efficient communication routing, and the Segment Customer Data Platform, which collects first-party data to assemble customer profiles that inform and optimize customer engagement. The communication channel APIs are deployed through the Programmable Communications Cloud and then are combined and expanded into application platforms in the Engagement Cloud to offer higher level functionality for specific use-cases. It can be viewed this full stack as best-in-breed in the CPaaS space, enabling deeply integrated, sticky communication solutions. Twilio has stellar customer metrics, with churn consistently below 5% and net dollar expansion in excess of 130% in recent years. Twilio’s market opportunity to be significant as the communications industry is still early in its transition to software-based communications. Twilio to lead the charge in the CPaaS space by continuing to gain share from legacy communication vendors and expanding into greenfield markets.

Financial Strength

Twilio’s financial position is sound. Revenue is growing rapidly, and the company is beginning to scale, while the balance sheet is in good shape. As of December 2021, the firm had cash and short-term investments of $5.4 billion and a debt balance of $986 million. In March 2021, Twilio issued $1.0 billion of senior notes, consisting of $500 million of 3.625% notes due 2029, and $500 million of 3.875% notes due 2031. In June 2021, the company redeemed its prior convertible notes, due March 2023, in their entirety. Since raising approximately $150 million in its IPO in 2016, Twilio has completed several secondary offerings, recently announcing a $1.8 billion offering of its Class A common stock in 2021. Twilio has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company, both on an organic and inorganic basis, to build out the platform and enhance future growth prospects. Twilio does not pay a dividend, nor repurchase stock, and for a young company in a relatively nascent industry, it is appropriate that it focuses capital allocation on reinvestments for growth.

Bulls Say’s

The addition of SI partnerships and solution APIs should lead to increasing success in winning enterprise customers, which not only offer a greater lifetime value, but also tend to be stickier customers.

Twilio has stellar user retention metrics, with churn consistently below 5% and net dollar retention north of 130% in recent years.

As Twilio focuses on developing more solution APIs and growth shifts from usage-based messaging to SaaS-like priced solutions, there should be a natural uptick in both gross margins and recurring revenue.

Company Profile

Twilio is a cloud-based communication platform-as-a-service company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows software developers to integrate messaging, voice, and video functionality into new or existing business applications. The company leverages its Super Network, Twilio’s global network of carrier relationships, to facilitate high speed cost-optimized global messaging and voice-based communications.

(Source: MorningStar)

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