Twilio: High Risk, High Reward

09/01/2016 7:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

This featured stock is a hot recent IPO that has high risk, but also has very high potential reward, explains growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

Twilio (TWLO) has a cloud-based communications platform that allows companies to easily send customized text, voice or video messages to clients or employees whenever needed, through any avenue (app, email, phone, etc.).

The big potential here comes from the fact that Twilio is by far the leader in the field and has a ton of high-quality customers such as WhatsApp, Hulu, EMC, Airbnb, Uber, and ... even here at Cabot.

It has a usage-based business model (the more messages sent, the more revenue it collects) and is pervasive; it is used by 30,700 firms (up 45% from a year ago).

This service saves a ton of time and increases convenience for its clients (Uber uses Twilio to route messages and calls from drivers to passengers without exchanging phone numbers.
EMC uses it to alert employees if an IT system is down, eliminating the need for emails; Trulia uses it to instantly text an online lead’s information to a real estate agent, etc.) and it’s often the cheaper solution.

The risks here include a $4.5 billion market cap vs. $219 million in revenue. In addition to the valuation, other risks are customer concentration — WhatsApp makes up more than 10% of revenue) — and the fact that Twilio is likely to be in the red for another few quarters.

Still, this is the type of platform that is both unique and has nearly limitless applications, which is why the stock is so strong.

TWLO went public the day before Brexit, and it came out of the gate on fire — the shares leaped from an open near $24 to $45 by mid- July.

Then came a rare IPO base, with shares etching a 17% deep, three-week zone (note the tight weekly closes, which is often a sign of accumulation).
And now we see the buyers stepping up to the plate, driving the stock to the moon on huge volume.

TWLO is extremely volatile — it’s average daily range is about 7% — but we think a nibble (no more than half your normal position size) on weakness and a loose stop could work out well.

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By Mike Cintolo, Editor of Cabot Top Ten Trader

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