The red-hot cloud sector offers a lot of options for investors and we present one that you cannot go wrong with, Twilio
Nov. 21, 2020
In the cloud sector, leading providers like Amazon, Microsoft, and Google hold the highest market share and have benefited a great deal from the pandemic. Twilio (NYSE: TWLO), although not a cloud provider, is on the up and up as well. Twilio is a cloud-based communications-platform-as-a-service provider (CPaaS), but what does that mean exactly? That means that text you get from Uber or Lyft alerting you of your car’s ETA, or DoorDash telling you when your food will arrive, or a campaigner sending you a text to poll you on your election choices are all created using a company like Twilio.
What are Twilio’s moats and how does it stack up?
Twilio’s revenue is up nearly 580% in the last five years to $1.1 billion in 2019 and is expected to reach $1.7 billion this year. The company’s stock price is up over 166% year-to-date (YTD) and it has beat analysts’ projections for revenue and earnings-per-share (EPS) for the last three quarters. Twilio also boosted its active customer account number to 208,000 in the last quarter, an increase of 21% year-over-year (YOY) and its dollar-based revenue net expansion rate is at 137%, up from 132% in the same period. This metric indicates that existing customers increased their spending on Twilio’s products by 37% YOY. How is this company doing so well?
It has two very significant business moats. The first is high switching costs as switching to a different communications brand would be a significant expense for clients not only financially but operationally as a switch would require retraining and potential downtime. The second is Twilio’s Super Network, a provider-agnostic system that offers its customers a seamless and secure foundation upon which to build their solutions. The thing that makes this network so special is the fact that it grows with every additional client, improving on quality and efficiency and it is this product that sets the company apart from its competitors. Additionally, the company has a first-mover advantage against competitors like Vonage and Bandwidth and enough cash on hand to survive nearly any hardship at nearly $3.3 billion.
How has Twilio been affected by the pandemic?
The pandemic has pushed the pedal on corporations boosting their communications projects by 95%, as the endeavor is considered extremely critical to address business challenges given rise by the outbreak. In fact, in a report prepared by Twilio, it was found that COVID-19 has accelerated companies’ digital communications plans by six years on average. The CPaaS market is expected to be worth $25 billion by 2025 and with Twilio’s first-mover advantage and powerful moats, it is sure to profit as a result.
Twilio has clients like Yelp, Twitter, eBay, LendingTree, and Dell to name a few and I reckon many other companies can use its technology for alerting, marketing, and polling, not to mention the ever-popular two factor authentication (2FA). This, coupled with the company’s potent moats practically ensures a bright future for Twilio and analysts couldn’t agree more as the company’s stock price is projected to reach $480 in a year’s time.
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