1 Underrated Tech Stock to Beat the Market
The CPaaS, or communication platform as a service, market is seeing tremendous growth. According to Juniper Research, the CPaaS industry could hit the $10 billion revenue mark globally by the end of 2022. And if businesses continue adopting APIs for business-to-customer and customer-to-business interactions, it could reach $35 billion by 2026. One underrated company serving this industry has the potential to beat the market: Twilio (NYSE:TWLO).
Twilio is crucial in helping businesses connect to customers using multiple channels via Twilio’s robust APIs. Airbnb uses Twilio for automated messaging between guests and hosts, helping to simplify Airbnb’s booking process. Lyft uses Twilio APIs to facilitate conversations between app users and Lyft drivers.
As integral as it is, a looming question hangs over the company: will the company return to former heights now that investors’ focus has shifted from fast growing revenues to operating losses?
Is Fast Growth Enough To Spur Twilio Higher?
By the end of Q1 2022, Twilio’s revenue was $875 million, nearly 50% higher than the same quarter just one year prior. However, Twilio’s losses grew by $16 million in the same period. The greatest contributor to this loss was an annual leap of almost 2x in Twilio’s SG&A line item from the year prior.
TWLO produced guidance for Q2 revenues between $912 million and $922 million, with non-GAAP losses projected between $35 million and $40 million.
The fast growth is enough to produce attractive discounted cash flow projections. Running the numbers, we see upside to $115.95 representing 41.6% upside.
Despite the rosy projections, Twilio must maintain its current growth trajectory while doing a better job at keeping costs under control. Twilio claims to be doing this and the proof is in the pudding at least on the top line. Active account holders grew by around 15% in Q1 2022. Organically, growth was around 45%. A portion of the revenue contribution stemmed from the acquisitions of Zipwhip and Segment.
Making a Case for TWLO
Twilio may be on the cusp of a bull run. In Q1 2022 revenue was up nearly 50%. The company anticipates continued growth for Q2 of around 37% YoY. In 2021, Twilio had amassed almost a 40% market share for CPaaS services globally, with its closest competition at just under 12% market share—that’s a pretty spectacular position to be in.
Twilio continues to be acquisitive, snapping up competitors and tightening its grip on the CPaaS market. The company has a solid foundation upon which to boost cross-sales that encourage greater customer spending, which is found in the company’s net-expansion rate.
This metric compares the spending between cohorts from quarter to quarter and year to year, increasing when customers buy or use more of a service. Twilio’s rate for Q1 2022 hovered around 127%—anything over 100% illustrates an uptick in existing customer spending. Even better, analysts expect this rate to compound annually at over 155% through 2027.
Where Do You Stand on TWLO? The Bottom Line
The current market cap for Twilio is hovering around the $18 billion mark while the stock is selling for 5x 2022 sales. As consumers feel the brunt of rising costs on everything from food to fuel, more companies will look to replace staffing solutions with automated technology, and there Twilio should benefit from the tectonic shift.
From a valuation perspective, Twilio has lots of upside potential, north of 40% based on our cash flow projections. But it needs to keep costs under control to spark further interest from institutional investors, who are still wary of growth stocks after the hit they have taken over the past 6 months.
