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In any case, Twilio is one of the fast-growers that many investors are quick to give up on due to the harder-to-understand nature of its business.
In any case, I am bullish on TWLO amid its recent rough patch that dragged shares around 28% off their highs. (See Insiders’ Hot Stocks on TipRanks)
Twilio’s Moat
Twilio’s cloud communications platform provides an invaluable suite of APIs (Application Programming Interfaces) that help software developers easily enable connectivity via a wide range of media, most notably text messaging, audio, and video.
In essence, Twilio is seen as a one-stop-shop for connectivity solutions. Connectivity capabilities are vital in this day and age, not just for tech companies. For that reason, the cloud-harnessing firm has a long growth runway in its corner of SaaS.
Twilio is one of many value-adding service providers that allow firms the ability to not have to reinvent the wheel, providing a better connectivity solution at a price that oftentimes is too good to turn down.
Reinventing the wheel can be a real sin in software. That’s why Twilio’s product is such a marvel. It can save teams a considerable amount of manpower, and lower the barrier to entry for firms that would have otherwise shied away from in-app communications.
Cloud communications or the communications-as-a-service (CaaS) model isn’t unique to Twilio. Few firms can do it better or easier than Twilio, though.
There’s a lot of complexity going on behind the scenes of the company’s incredible platform. Such complexity is hidden from clients, as they’re typically irrelevant for them. Clients don’t need to know the deep-down specifics as to how a tool is made. Just that it works, and if it’s the right tool for the job.
High-Quality Growth
Once Twilio is embedded in an application, it’s often tricky to switch to a competitor. As such, switching costs are high, allowing Twilio to boast some of the most enviable gross retention rates (around 97%) in the software space. The stickiness of Twilio’s service is another essential moat component that investors would be wise not to discount.
While customers love Twilio, and the platform has proven pretty sticky, the company will need to keep innovating to prevent any moat erosion at the hands of hungry competitors in the cloud.
With a proven management team, and potential to upsell existing customers, Twilio can continue growing as it outpaces its competitors.
The CaaS space is still in its early innings, and Twilio has proven to be a leader. Not only can Twilio continue growing at an applause-worthy rate over the coming years, but it’s also able to grow while being able to easily retain users it had previously won over.
The ability to attract and retain customers — that’s true high-quality growth.
Smart Acquisitions
Finally, the firm has developed quite the appetite for acquisitions over the past two years, with Zipwhip and Segment being acquired over this past year, for $850 million and $3.2 billion, respectively.
Both acquisitions complement Twilio’s toolset very well, and could serve to help the firm continue to fend off rivals, as it continues to build upon its offering.
Most notably, customer data platform (CDP) service provider Segment puts Twilio further into the turf of cloud behemoths Salesforce (NYSE:CRM) and Adobe (NASDAQ:ADBE).
Wall Street’s Take
According to TipRanks’ analyst rating consensus, TWLO stock comes in as a Strong Buy. Out of 15 analyst ratings, there are 14 Buy recommendations, and one Hold recommendation.
The average Twilio price target is $468.85. Analyst price targets range from a low of $430 per share, to a high of $550 per share.
Bottom Line
After a recent pullback, TWLO isn’t cheap at 23.1x sales. Still, the company is doing many things right, and at this trajectory, it’s likely to emerge to become a dominant force in CaaS over the next decade.
Disclosure: Joey Frenette owned shares of Salesforce at the time of publication.
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