Twilio is Accelerating its Sales Growth
I wrote yesterday about how Shopify was the fastest SaaS company to get to $1 billion in sales, but it’s quite possible Twilio is going to break that record next year. The could-based communications platform came out with earnings yesterday after the bell, accelerating their sales growth yet again.
The stock is up over 300% in the last 12 months, one of the best performers in the entire market.
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Here are some of the highlights from the report:
Revenue of $650 million in 2018, up 63% Y/Y
Dollar-Based Net Expansion Rate of 147% in the fourth quarter of 2018, compared to 118% in 2017.
Guiding for over $1 billion in revenue in 2019.
64,286 active accounts at the end of 2018, up 30% Y/Y.
Dollar-Based Net Expansion Rate is revenue growth from existing customers (meaning they were with Twilio in 2017 as well). A 147% rate means that Twilio is getting 47% more from their existing customers than they were a year ago.
And that is the beauty of Twilio’s pay-as-you-go business model. Clients can use Twilio’s technology for free through its APIs (Application Programming Interfaces) to integrate video chats, messaging, and calling within mobile applications. They are charged on usage, so when their apps start growing, Twilio’s revenues grow as well.
Large consumer tech companies like Twitch, Lyft, and WhatsApp use Twilio to back-end their communications network, which shows that the technology can scale to almost any level.
But is Twilio a Buy?
Right now Twilio doesn’t make a GAAP profit, and is losing money every year. Its market cap of $11 billion gives it a P/S ratio in the teens, which is quite high, even for a SaaS business. Gross margin sits at around 53%, so once they stop growing R&D and marketing (combined $350 million in 2018) they have the ability to be a very profitable business and possibly fill this lofty valuation.
Twilio is a textbook growth stock, and any investor shouldn’t be surprised by future price volatility. Still, I think anyone with a long-term view could be looking at a future giant in the SaaS business, similar to an Oracle or Salesforce.
Disclosure: The author is not a financial adviser, and may have interest in the companies talked about.