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Twilio Stock: Buy, Sell, or Hold?

Twilio (TWLO) has had an impressive run in 2020 because of its robust cloud communication infrastructure that powers extremely complex applications for businesses. With the remote working culture likely to continue even after the pandemic, TWLO has the potential to deliver stellar returns this year. Let’s discuss.

Twilio, Inc. (TWLO) is an international cloud-communications Platform-as-a-Service (PaaS) company. It enables developers to build, scale and operate real-time communications within software applications. Its platform consists of Programmable Communications Cloud, Super Network and Business Model for Innovators.

Because  the demand for cloud communication and customer data platforms has accelerated in wake of the adoption of a widespread remote working culture, TWLO has grown significantly. Because this cultural change is likely to continue even after the pandemic has departed, we think TWLO is well-positioned to reach new highs.

By making communications a part of every software developer’s toolkit, TWLO is enabling innovators across every industry, ranging from emerging leaders to the world’s largest organizations, to reinvent how they engage with their customers. This has helped the stock gain 223.6% over the past year. This impressive performance, combined with several other factors, has earned TWLO a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates TWLO:

Trade Grade: A

TWLO is currently trading above its 50-day and 200-day moving averages of $344.65 and $283.61, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 72.1% gains over the past six months reflect solid short-term bullishness.

TWLO’s total revenues have increased 51.8% year-over-year to $447.97 million in the third quarter ended September 30, 2020. Its non-GAAP EPS has risen 33.3% from the year-ago value to $0.04. Active customer accounts increased 21% year-over-year to 208,000 users over this period.

TWLO entered an agreement to acquire Segment, a market-leading customer data platform, in October for approximately $3.20 billion of TWLO class A stock. The acquisition should help TWLO make its customer experience seamless by providing a personalized, timely and impactful engagement service across multiple divisions.

In late September, TWLO launched Microvisor, an IoT connectivity and device management platform that offers embedded developers a place to  build connected devices, keeping them secure, and managing them through their lifetimes. This will enable Twilio to adapt itself to industry trends and build new IoT solutions faster, with enhanced security and reliability.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , TWLO is well-positioned. The stock is currently trading slightly below its 52-week high of $386.75.

The company’s net revenue has grown at a CAGR of 61.7% over the past three years. This can be attributed to its  successful strategy of developing the world’s communications infrastructure through APIs.

Peer Grade: A

TWLO is currently ranked #1  of 13 stocks in the Software - SAAS Industry. Other popular stocks in this industry are Palantir Technologies (PLTR), Elastic N.V. (ESTC) and DYNATRACE, INC. (DT).

PLTR, ESTC and DT have gained 162.3%, 117.2% and 52.9%, respectively, over the past year. This compares to TWLO’s 223.6% return over this period.

Industry Rank: C

The Software – SAAS Industry is ranked #103  of 123 industries. The companies in this industry operate as software-as-a-service providers and are focused on providing software analytics products worldwide.

Major business activities were being operated through cloud technologies amid the pandemic induced disruptions last year. As a result, the tech-sector rallied significantly. However, the growing optimism around the COVID-19  vaccine roll out and gradual resumption of economic activities is slowing the industry’s momentum. An expected V-shaped economic recovery is propelling investors to rotate away from high-growth tech stocks into potential turnaround candidates.

Overall POWR Rating: A (Strong Buy)

TWLO is rated “Strong Buy” due to its impressive past performance and short-term bullishness, as determined by the four components of our overall POWR Rating.

Bottom Line

Despite soaring more than 280% over the past nine months, TWLO has the potential to grow further based on its continued business growth, favorable earnings and revenue outlook and price momentum.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for TWLO. Analysts expect the company’s revenue to grow 37.1% year-over-year to $454.15 million in the about-to-be reported quarter (ended December 31, 2020). TWLO’s EPS is expected to rise at a rate of 20.5% per annum over the next five years. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. This outlook. We believe,  should keep TWLO’s price momentum alive in the near term.

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TWLO shares fell $0.87 (-0.22%) in after-hours trading Friday. Year-to-date, TWLO has gained 14.82%, versus a 0.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.


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