This article is proudly sponsored by the Business Ethics Team at the University of Texas at Austin!

About Twilio

I used to work at Red Lobster in Grand Forks, North Dakota.

Please hold the applause.

While working there as a host part of my job involved seating guests, coordinating waiters and waitresses, maintaining a clean workspace and, slightly outside of the confines of my job description involved keeping customers smiling and wanting to stay and dine at the restaurant even though there was a rather long wait time.

So, I did what any normal Red Lobster employee would’ve done and turned on some charm and went out of my way to engage with the customers, perhaps talking about a recent trip they took or their grandchildren.

I remember one particular night I had briefly mentioned to a customer that I was self-studying finance outside of my coursework at the local university and they proceeded to adamantly recommend that I look into Twilio stock, saying something to the extent of “you’ll regret not buying this stock.”

At the time, I think I just casually looked at the company’s ticker symbol on my phone and forgot about it shortly thereafter.

My due diligence game was seemingly weak back then.

Nevertheless, I think I should’ve paid more attention because during this era the stock went from trading at around $97 per share to just about $400 within about two years.

I guess I missed out.

Well, yes and no, as this company’s stock (NYSE: TWLO) has since absolutely cratered to just below $60, however, if I would’ve sold at the top, I would’ve been a very happy Red Lobster host.

Given this drop in share price and my being slightly more knowledgeable about this company and what it actually does and how it makes money, it is only fitting that I perform a stock analysis on Twilio today.

Based in San Francisco, California, Twilio is a communication platform, but not to be confused with being a mobile carrier such as Verizon or AT&T, but rather it is a leader in an industry that allows companies to better engage and, of course, communicate with their customers, primarily through channels such as texting and calling (video is part of Twilio’s repertoire as well), also acting as a sort of data collector and analyzer for the organizations it works with, allowing them to garner more information and predictive data about their customers and how they can better retain users and customers on their own platforms. 

And yes, for those still riding the artificial intelligence (AI) wave, Twilio has also apparently been intent on incorporating AI into its business and operations overall.

Here you can find a broader overview of the company and what it does.

With respect to how this company makes money, Twilio charges usage-based fees to its customers (again, businesses, primarily) which evidently vary with the amount of texts and calls an organization makes using Twilio’s software and related technologies with the company also employing a subscription model for some of its other services, where users pay a certain amount each month to continue using Twilio’s services.

Overall, we would assume that this revenue strategy is fairly recession resistant, as largely irrespective of the state of the economy people will still need to connect with support agents and others from the company they are consuming from.

More on that momentarily.

Now, even though you might’ve not heard of Twilio before, it is basically the communications center behind some of the world’s most well known companies, including but not limited to Dell, Lyft, Airbnb, Duolingo, Panera Bread, Chime, Salesforce, Yelp, CBRE, eBay and so many others. 

For example, let’s say you just got off of work and needed to catch an Uber home because your car was in the shop. While you are waiting for your Uber (which just so happens to reportedly be one of Twilio’s customers, by the way), you periodically receive messages from the company updating you on where your driver is and/or how much longer it will be until they arrive at your pick up location.

Those updates sent in the form of a digital message are powered by Twilio.

Therefore, being the communications middleman in this scenario among many others is sort of a critical role, however, we do understand that this company does operate a consumption and/or usage-based fee structure and thus, if less and less people are hailing Ubers, this will more than likely lead to less and less communications firepower needed by Uber and thus consumption falls and revenues as well, which can be viewed as a sort of con with Twilio’s revenues and the consistency thereof, perhaps a flaw in their business model overall, maybe depending on who you ask. 

At any rate, Twilio is a company that serves an arguably mission critical role across many different sectors and organizations and given our personal connection with the company (and Red Lobster, obviously), we figured it is just about that time to write about this company and analyze its stock (NYSE: TWLO) once and for all.

Twilio’s stock financials

Trading at $56.15 per share with a current market capitalization of $10.17 billion along with no annually distributed dividend nor a readily available price-to-earnings (P/E) ratio in sight, there isn’t a whole lot to glean from this initial information, as it is rather challenging to initially peg this company’s fair, intrinsic value without a price-to-earnings ratio, however, one can note that relative to its previously traded levels, this company’s stock is most certainly trading at a steep relative discount.

In obtaining some more helpful, concrete information, it can be found that Twilio’s executive team is tasked with tending to and taking care of just about $12.5 billion in terms of total assets as well as around $2 billion in terms of total liabilities, which is quite a stellar overall balance sheet breakdown, as this technology firm practically has six times the amount of total assets than it does its total liabilities, implying that this company isn’t likely going out of business anytime soon due to being overleveraged or having too much debt on its books, also implying that it has a fair amount of cash at its disposal to use to dive deeper into AI as well as engage itself in new, supplemental lines of business within the cloud and communications spaces.

Moving right along, according to the figures displayed on Twilio’s income statement, the company’s total annual revenues since 2018 have been growing at what feels and seems like an impressive, exponential rate, with its revenues in 2018 listed at $650 million, rising the following year to around $1.1 billion, continuing its climb to its latest displayed figure (on TD Ameritrade’s platform) of $3.8 billion, as reported in 2022.

This growth in revenue suggests that Twilio has been on a tear acquiring new customers and/or gaining and proportionately charging more usage fees to its clients.

We happen to think both of these are plausible catalysts for the company’s continued growth in revenues and while it is certainly a positive, not to mention that we have good reason to assume that this company will continue growing its revenues in the years to come, we just hope this communications platform isn’t burning through too much cash in the process in attaining these figures.

With that, it is fitting that we take a brief look at the company’s cash flow statement, which will give us an overview of the company’s net income and total cash from operations during the same time period, between 2018 and 2022.

Sadly, the losses on these fronts have been both significant and growing, as the company’s net income in 2018 was -$122 million and it has since grown more and more to the downside to its latest reported figure of a whopping (and discouraging) -$1.256 billion, indicating that this company practically relies on burning through exorbitant amounts of cash in order to carve out the revenue growth it has, which is reasonable in some cases, as many technology companies experience cash burn for the first few years, if not decades, in certain circumstances, however, it is usually followed by an end being in sight and with Twilio, there doesn’t appear to be a quantifiable end in sight, as each year over the past five years this company has been burning through cash like crazy, and the trend certainly isn’t favoring this company in taming this burn anytime soon.

Suffice it to say, we are happy to find that this company’s balance sheet can support this burn, but slowing this burn is a must for this company before it becomes too much to handle, as Twilio can’t rely on its stellar balance sheet forever, particularly given the rate of its recent and mounting net income losses.

Twilio’s stock fundamentals 

With the cash burn, it is hardly a shocker to find that this company’s trailing twelve month (TTM) net profit margin (also listed on TD Ameritrade’s platform) sits well below that of the industry’s respective average, as, Twilio’s TTM net profit margin is pegged at -30.11% with the industry’s listed average tucked away at -1.54%, which is discouraging, to us, at least, on two distinct levels.

One, this company’s TTM net profit margin is frankly appalling, as it indicates that it is losing money at a rapid rate (certainly confirmed by its cash flow statement) and it also indicates that even if it does improve on this front, the industry’s respective average, although it is considerably better than that of Twilio’s, is still negative, which is far from encouraging for a prospective shareholder in not only Twilio itself, but the cloud integrated communications sector overall.

With that, it is also far from a stretch to find that the company’s TTM returns on assets and investment(s) are both subpar in relation to the industry’s average as well, with, for instance, the company’s TTM return on assets sitting below at -9.85% to the industry’s listed respective average of a rosier 2.16%, implying that Twilio is having a rather difficult time in extracting returns on the assets at its disposal, however, for the time being we are actually far more concerned with the company’s profit (or really, lack thereof) situation, all things considered.

Should you buy Twilio stock?

Twilo serves an important purpose for organizations, companies and individuals around the world, not to mention that its balance sheet is in a healthy state of being and there are some pros to operating a consumption-based revenue model in the software sector, but of course, like essentially anything in life, there are cons as well, some of which were mentioned in the early innings of this stock analysis article.

Speaking of pros and cons, given the relevant facts and figures, we deem there to be more cons than pros as it relates to pondering an investment in Twilio through its stock (NYSE: TWLO).

Some of our present concerns include the fact(s) that the company is hemorrhaging cash at an exponential rate, its TTM net profit margin is absolutely abysmal and its TTM returns on assets and investments are also substantially lower than that of the industry, on average.

These are some core figures that are evidently challenging to get our heads around and justify for the time being, so until we see some much needed improvement on these fronts, in the interest of objectivity and maintaining credibility, we feel comfortable in serving this company’s stock (NYSE: TWLO) a “sell” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.