There is a gold rush to connect customers, data and sales marketing, and Twilio Inc. (NYSE: TWLO, Rated “D”) is making the best-in-class tools application developers need.
The San Francisco-based company announced blockbuster third-quarter sales and record new customers on Monday. Twilio managers even raised guidance for the upcoming quarter.
At its heart, Twilio is a cloud communications platform. Its application programming interfaces (API) — modular bits of code that developers can easily plug into their online applications — have become favored to make and receive telephone calls, text messages, video and chat.
Requesting an Uber Technologies, Inc. (NYSE: UBER, Rated “D”) ride or sending a Facebook, Inc. (Nasdaq: FB, Rated “B-”) message to a friend on their birthday means you’re probably using a Twilio API.
The beauty of the business model is Twilio gets paid a small fee every time one of its APIs is employed. Keep in mind, its platform was used 1 trillion times during 2019, and growth is only getting started.
Two weeks ago, managers announced a $3.2 billion merger with Segment, a key competitor in the API marketplace. Adding Segment’s API portfolio is a master stroke. Since 2010, the cross-town rival has been helping developers pull customer data from one application as a building block, then seamlessly fit that information in another.
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Most companies use Segment APIs to integrate their customer service, marketing and analytics software.
The deal follows the 2019 purchase of SendGrid, a large email API developer. Although email marketing may seem dated in the era of online chat and instant messages, the $3 billion deal was a critical building block for Twilio.
Sendgrid’s software tools focus on online purchase receipts, signup verifications and password reminders. These transactional emails are part of the digital transformation process currently underway across many larger enterprises.
Together, SendGrid, Segment and Twilio have all the required tools to break down the data silos that gum-up customer service: Companies will be able to instantly recognize customers, understand their needs, then send relevant communications.
The combination makes Twilio a complete, end-to-end engagement platform and a place where developers can pick and choose best-in-class APIs to build digital first applications. These programs are in big demand as several parts of the economy are transformed with data.
Twilio managers point out that telehealth, contactless delivery, distance learning and self-serve business models are all about finding new ways to engage customers. APIs, based on usage, are inherently low-cost development tools, and their use is booming.
For example, in the first half of 2020, Twilio managers note that 63 billion messages were sent using its APIs. That is nearly as many as all of 2017 and 2018 combined. And messages are only one part of the Twilio API platform.
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Sales during Q3 were $48 million, up 52% year-over-year, according to the press release. Active accounts grew 21%, to 208,000. And the company now expects $450-$455 million in revenue, up about 36% and well above the FactSet consensus estimate from analysts who cover the firm.
Without question, this is a platform that investors should definitely keep on their radar. The tricky part is getting the timing right. Given its lack of profitability, Twilio can be an extremely volatile stock. And right now, it’s expensive, trading near $300.
Investors should keep the stock on their radar and use weakness as a potential buying opportunity.
Best wishes,
Jon D. Markman
