Twilio (TWLO) stock is losing popularity among investors, with shares down around 7% in the last year and 15% year-to-date. Investor confidence in this cloud communications platform has been impacted by difficult year-over-year comparisons, increasing competition, and a squeezed gross margin.
Twilio’s third-quarter results were released last month. On both the top and bottom lines, the company outperformed expectations. However, owing to weaker-than-expected Q4 guidance, the company’s profits failed to excite investors.
Despite these setbacks, it’s not wrong to say that Twilio’s growth prospects are still bright.
RBC Capital’s Rishi Jaluria agrees and is optimistic about the firm, as he reported earlier this week. He met with Twilio’s competitors and discovered a few key aspects that bolstered his long-term confidence in the company. (See TWLO stock charts on TipRanks)
Twilio – A Market Leader
According to Jaluria, Twilio is competitively well-positioned in the CPaaS (communication-platforms-as-a-service) industry. He offers a variety of convincing reasons to believe Twilio will continue to be the industry leader in the long run.
To start with, the analyst said that the SMS/Basic Messaging market will continue to reign supreme in B2C (business-to-consumer) interactions, due to its “ubiquity and reliability.” Moreover, according to a report by Gartner, this market will develop at a robust 17% CAGR from 2020 to 2025. Therefore, Twilio’s Programmable messaging is expected to develop rapidly over the next few years.
Then come Twilio’s gross margins, which have always been a weak point for the company, according to Jaluria. When compared to competitors, he thinks Twilio’s gross margin profile is “impressive” and indicative of “pricing power.”
In the above context, he writes that Twilio has the “potential to reach 60%+ gross margins in the next couple of years.”
However, he believes that management changes, the resignation of COO George Hu, and low momentum for Twilio’s cloud-based contact center, Flex, are of concern for the company.
Nevertheless, “these challenges are near-term,” he says, “and that Twilio will be well-positioned coming out of these temporary factors.” He believes that the resurgence in business travel, as well as the success of Twilio Segment and Twilio Engage, will be significant growth drivers in the coming years.
Jaluria concludes, “Long-term, Twilio remains one of our favorite names, as we believe it will become a larger platform and consolidator of IT budgets over time.”
Based on his belief, Jaluria maintained his Buy rating on the company and a price target of $450. According to TipRanks’ analyst ranking system, Jaluria has yielded an average return of 19.1% per rating.
Improved Website Traffic
Apart from Jaluria’s positive comment, we also discovered an encouraging website traffic trend for Twilio.
On a monthly basis, the unique user visits to Twilio’s website increased by 18.6% from September to October. Also for Q3, we saw that the number of unique visitors to Twilio’s website increased by 8.4% in comparison to Q2.
These data were retrieved with the help of TipRanks’ new Website Traffic tool, which sources its data from Semrush (SEMR).
The stats indicate that Twilio is still benefiting from significant secular tailwinds, which could keep demand for Twilio’s services high in the long run.
Wall Street’s Take
The Wall Street analyst consensus is also optimistic about Twilio, with a Strong Buy rating based on 16 Buys and 2 Holds. The average TWLO price target of $426.25 holds an upside potential of around 50.2%.
Disclosure: At the time of publication, Shalu Saraf did not have a position in any of the securities mentioned in this article.
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