Cloud communications platform provider Twilio Inc (NYSE: TWLO) reported fourth-quarter results that came in better than expected, but 2020 guidance has some investors concerned. Here is a summary of how some of the Street's top analysts reacted to the print.
Wells Fargo analyst Michael Turrin maintains an Overweight rating on Twilio's stock with a $155 price target.
Morgan Stanley analyst Meta Marshall maintains at Overweight, $140 price target.
Stephens analyst Ryan MacWilliams maintains at Equal-Weight, price target lowered from $115 to $105.
Baird analyst William Power maintains at Outperform, price target lifted from $140 to $150.
Wells Fargo: Growing 'Up So Fast'
Twilio ended 2019 with year-over-year revenue growth of 62% to more than $1.1 billion. Management guided for fiscal 2020 revenue to come in at around $1.5 billion although the year will be full of investments.
Turrin said Twillio will spend on R&D, core systems/infrastructure and a go-to-market expansion. This is the "right strategic decision" given the $55 billion communications opportunity the company faces.
"We think TWLO shares hold significant upside potential and would be buyers on any post earnings dip," the analyst wrote in a note.
Morgan Stanley: What To Watch Out For
Twilio should remain a market share gainer in a fast-growing market but there are three items worth watching, Marshall said. These include:
- Significant investments over 2020 will "limit and even contract" near-term profit
- Printed dollar-based net expansion rate (DBNE) fell from 132% last quarter to 124%
- Net customer adds slowed from 10,000 in the second quarter to 7,000 and new customers contributed 12% of revenue growth versus 15% in the third quarter.
Stephens: Mistaken Identity
Twilio is primarily an SMS API provider, which MacWilliams said warrants a lower sales multiple given its lower gross margins. In fact, Twilio's gross margins (ex-SendGrid) were disappointing as it fell to 53.6% in the quarter and is up just 40 basis points from fiscal 2018 levels despite a 47% organic revenue growth rate.
Management's focus on investing in its products is an "admission" increased investment is needed before higher-margin products can notably impact revenue and margins.
Baird: Valuation Discussion
Twilio's stock trades at 10.7 times 2020 revenue forecast and 8.6 times 2021 estimates, Power said. This compares to the SaaS group at roughly 13 times 2020 estimates and 10 times 2021 estimates.
The research firm's revised $150 price target is based on 11 times 2021 revenue estimates, which are in line with its high-growth peers and awards Twilio credit for revenue growth and a "significant" competitive moat.
TWLO Price Action
Shares of Twilio were trading lower by more than 6% at $119.16.