Analyst says Twilio Should be a UCaaS Vendor

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.

To be fair, I will acknowledge Twilio has made strides in the contact center arena, with its Twilio Flex UCaaS offering. It is a customizable and intuitive API-rich platform that lets users design exactly the kind of contact center they want with little-to-no-compromise on the finer details and intricacies of the contact center.

Not only will Twilio be unprofitable going into 2020, but it doesn’t have impressive growth rates, and they’re slowing down rapidly, according to Kerravala. This tends to lead to investors taking more precautionary measures when investing based on loyalties, business interests, and the potential of making the highest profit possible, a trio doesn’t often mesh well.

One thing is for certain, whatever happens to Twilio is in the hands of its leadership. And those in charge will have to evaluate some key parts of the business to assess where the shortcomings are and how to best strengthen its value proposition.

Twilio will also have to recover from what appears in 2020, will be a year of record-breaking loss for the CPaaS company. The only question that remains: Could being a UCaaS vendor be the secret to success as Kerravala suggests?