On February 5, 2020, Twilio reported fourth-quarter earnings for 2019. Despite surpassing analysts' expectations the CPaaS provider's stocks still fell thanks to one noteworthy element of the report. Twilio predicted lower-than-expected guidance for 2020. This combination seems to have created a sort of cognitive dissonance that led Twilio's stocks to suffer and take a seven percent dive.
Twilio's guidance for Q4 was solid, about $313 million with adjusted earnings close to $0.02 per share. So, why did Twilio's stocks fall despite reporting strong numbers in 2019? Zeus Kerravala, Founder and Principal Analyst, ZK Research said its because "Twilio has long been overvalued," adding:
"In Q4 the company's organic growth was only 36 percent with the rest of its growth coming from the SendGrid acquisition. Without propping up SendGrid, Twilio's stock probably wouldn't trade at this multiple"
He told me, while Wall Street estimates Twilio's revenue will increase 31 percent this year, it also predicts Twilio will slow down to 26 percent growth by 2021. "This is still impressive growth but the stock price indicates a company with a growth rate well over 50 percent."
He contends, there's another more complex element to add into the mix. Twilio plans to spend a hefty sum of money on a new research and development facility in India, expanding sales, marketing, and more.
"This causes the company to take big losses instead of producing a modest gain. The extra spend doesn't seem to return much shareholder value, which is not what one would expect for a mature company"
Kerravala believes Twilio will have more direct competition, adding "I'm expecting Vonage / Nexmo to challenge Twilio more, it hasn't made many strides in contact center and most who want to 'build their own' will look toward Amazon." He said, long term, he didn't think Twilio should remain a company, stating the strategic move to make would be to evaluate entering the market as a UCaaS vendor, similar to the way Vonage/Nexmo is structured.
[caption id="attachment_26470" align="alignright" width="250"]
Zeus Kerravala[/caption]
