Twilio: The Future of Communications?

12/21/2017 5:00 am EST

Focus: TECHNOLOGY

Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

Twilio (TWLO) aims to be the “future of communications,” the way other cloud platforms like AWS has reshaped compute infrastructure and Stripe has revolutionized payments, asserts growth stock expert Todd Shaver, editor of Bullmarket.com.

Twilio addresses a huge marketplace and has the potential to scale into a much larger company than it is today. The company continues to grow at a 40% rate, even as it approaches a $500 million run-rate.

Twilio hosted its first-ever investor day two weeks ago; despite many quarters of strong results, the stock has remained under pressure. Its gross margin is much lower than most software companies due to its position of being a “middleman” between developers and telecom networks. The rise of possible competition from services like AWS is a concern.

Based on research from Gartner, the leading software industry analyst, Twilio believes its opportunity in communications to be 40% of the global IT market ($3.6 trillion).

Twilio also reminded investors that its sales model is unique among enterprise software companies by focusing on software developers rather than enterprise CIOs, attributing to its lower spending on sales and marketing. In its most recent quarter, it spent just 23% of its revenues on sales and marketing.


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This is low compared to the majority of high-growth software companies, that can typically spend upwards of 50% of revenues on sales and marketing.

Twilio also plans to greatly expand its count of quota-carrying reps (QCRs). At the end of 2016, Twilio’s sales organization only had 23% of its headcount as QCRs—indicating that the bulk of the company’s new sales hires weren’t fully ramped yet to the $1.5-$2 million in revenue that the typical QCR brings in.

At the end of 2017, however, Twilio estimates that 46% of its sales organization will be QCRs. This will drive further growth in the company. Revenue guidance calls for $104 million, a strong 25% growth rate. More good news is that active developer accounts are up 35% over last year, and customer retention rate is literally close to 100%.

The company has generated 56% in gross margins year-to-date, the company believes it can attain gross margins of up to 65% in the long term.

Twilio is operating at near-breakeven now, but the company expects to attain an operating margin of at least 20% in the future. We are hanging tough with this great company. Patience will win out in the end, as revenues drive all.

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