Twilio Inc.’s (TWLO, Financial) share price surged a whopping 144% in just three months after its initial public offering (IPO) in June 2016. The cloud communications company's stock, though, has lost more than 60% of its overall value since reaching its all-time high and is down 11% year to date.
Twilio reported decent first-quarter results in May with revenue rising 47% year over year to $87.37 million and beating the estimates by $3.77 million. Despite the beat, the company traded down more than 25% on the back of weak second-quarter and full-year guidance. Twilio issued weak guidance because its largest single customer, Uber, plans to reduce the use of its services over the next year.
The revenue generated from Uber in the first quarter accounted for just 12% of its overall revenue, signifying a drop of 5% compared to the revenue produced during the fourth quarter of the previous fiscal. The quarterly numbers would have been incredible if Uber had persisted at the previous level of spending.
The company anticipates that the revenue from Uber will carry on shrinking in the upcoming quarters as Uber increasingly turns to other solutions in different operating territories to handle its in-app communications. While Uber is not profitable yet, a move to cut costs is not shocking.
On the other hand, Twilio’s other important customer “Airbnb” carries on growing at a healthy rate. Airbnb has over 3 million homes in 191 countries on its platform and utilizes Twilio for SMS and Push notifications. Over the prior two years, Airbnb has appreciated 400% volume growth, and its growth prospects look robust as well.
Recently, Northland analyst Micheal Latimore said that Airbnb also uses other vendors for its platform. Moreover, Latimore sheds light on the fact that Airbnb’s 80% growth volume was mainly due to Twilio, but the problem is that Airbnb could veer away from Twilio for cheaper providers in the years ahead.
Moving onward, demand for Twilio’s services is growing. The company added 4,000 new customers in the prior quarter, totaling almost 40,700 accounts and signifying a surge of 42% year over year. Moreover, the company is also expanding its network with new services that can accelerate its revenue per customer.
This expansion comprises new security and enterprise services and an extending partnership with Amazon (AMZN, Financial) Web Services (AWS). The company also recently introduced “Function,” which lets developers build communications apps without having to worry about servers.
One of the most significant things to keep in mind is that Twilio is not profitable yet. The company anticipates a non-GAAP loss in the range of 27 cents to 30 cents per share in 2017, up significantly from 16 cents per share in 2016. Although the company’s GAAP loss has narrowed on an annual basis, it still remains deep in the red.
Summing up
Twilio is heavily dependent on Uber, Airbnb and WhatsApp as customers and Amazon as a platform partner. Twilio’s major customers and its platform partners are substantially larger, leading to intensified risks that the relationships would not last in the long run.
Although Twilio’s customer base carries on growing at a healthy rate, it still generates a significant portion of its revenue from major clients. On the other hand, Twilio trades at nearly seven times sales, suggesting the stock is expensive at the present level.
As a result, shareholders should stay away from the stock as loss of primary customers and increasing losses along with its high valuation could all hurt the stock.
Disclosure: No position in the stocks mentioned in this article.
