Accelerated digitization due to the pandemic has boosted the prospects of cloud companies. As per IDC, global spending on cloud services, the hardware and software components supporting cloud services, and the professional and managed services opportunities related to cloud services will cross $1.0 trillion in 2024, while sustaining a double-digit compound annual growth rate (CAGR) of 15.7%.
CPaaS or Communications Platform as a Service providers like Twilio and Bandwidth are also experiencing higher demand for their services amid COVID-19. Developers and companies use the APIs (application programming interface) of Twilio and Bandwidth to embed communication features such as voice, video and message in their apps to engage with their customers.
We will discuss the recent performance of Twilio and Bandwidth and use the TipRanks Stock Comparison tool to place these CPaaS providers alongside each other and see which stock offers a more compelling investment opportunity.
Twilio (TWLO)
Twilio is considered a pioneer in the CPaaS market and is a leader in the cloud-based communications services space. The company has been strengthening its position over the years by expanding its portfolio of innovative solutions organically as well as through strategic acquisitions. It’s 2019 acquisition of e-mail API platform SendGrid considerably boosted its revenue.
On Nov. 2, Twilio completed the acquisition of Segment, a customer data platform. The company believes that the addition of Segment to its platform will provide businesses actionable insights that will help enhance customer engagement.
Meanwhile, the pandemic has accelerated Twilio’s growth. Recently, the company reported strong 3Q results with its revenue increasing 52% Y/Y to $448 million. Robust demand for its platform drove a 33.3% rise in adjusted EPS to $0.04, crushing analysts’ estimate of a loss per share of $0.03. The company ended the quarter with over 208,000 active customer accounts, reflecting a 21% Y/Y growth. Also, Dollar-Based Net Expansion Rate, a key metric that indicates revenue from existing customers, was 137%.
Coming to 4Q guidance, Twilio expects revenue to grow in the range of 36%-37% to $450 million-$455 million. It predicts 4Q adjusted loss per share between $0.08 and $0.11 compared to EPS of $0.04 in 4Q19. The company’s 4Q revenue guidance exceeded analysts’ expectations but the earnings outlook lagged analysts’ forecast of an EPS of $0.01. (See TWLO stock analysis on TipRanks)
Nonetheless, Twilio sees significant growth opportunities and estimates that its addressable market could grow from $62 billion in 2020 to $87 billion in 2023. The company expects a 30% organic revenue growth for the next four years.
Recently, the company launched the Twilio Flex ecosystem, which allows customers to access over 30 validated solutions from partners like Google, Salesforce, Zendesk, and Calabrio to accelerate their contact center projects. It also launched Twilio Frontline — a mobile application that allows field workers to seamlessly engage directly with customers from their personal devices. And, keeping in mind the spike in demand for Twilio Video and to reach more developers, the company introduced Twilio Video WebRTC Go, a free version of Twilio Video for peer to peer use.
Meanwhile, in reaction to the 3Q earnings release, Rosenblatt Securities analyst Ryan Koontz reiterated a Buy rating for Twilio with a $375 price target, saying “TWLO is a terrific story as the global leading supplier of CpaaS with the most advanced products and channels in its segment.”
“Consistent strong sales execution supports our confidence in near-term revenue estimates but increasing competitive threats could limit expected gross margin expansion.”
The Street echoes Koontz’s bullish stance with a Strong Buy analyst consensus based on 19 Buys versus 3 Holds. With shares already advancing by an impressive 178% so far in 2020, the $355 average analyst price target reflects an upside potential of about 30% in the coming months.
Bandwidth (BAND)
Bandwidth is experiencing robust demand for its cloud-based communications platform amid the pandemic. The company’s revenue grew 35% in the first nine months of 2020 compared to a 14% growth in the entire 2019. Bandwidth has its own nationwide IP voice network, which it believes gives it a significant competitive advantage in the control, quality, pricing and scalability of its offerings compared to its peers.
On Nov. 2, Bandwidth acquired Voxbone, an international enterprise cloud communications provider, for €446 million (about $519.4 million). The company believes that this acquisition will accelerate its international expansion by several years and will combine its extensive US presence with Voxbone’s world-wide platform across more than 60 countries.
Meanwhile, Bandwidth’s 3Q revenue grew 40% to $84.8 million with CPaaS revenue rising 43% to $73.8 million. The company attributed 7% of CPaaS revenue growth to elevated messaging volumes due to the US elections and 5% growth to COVID-related dynamics especially the favorable impact of remote working. The company delivered an adjusted EPS of $0.24 in 3Q20 compared to an adjusted loss per share of $0.06 in 3Q19.
It ended 3Q with 2,015 active CPaaS customers, implying a 25% Y/Y growth. Also, the dollar-based net retention rate was 131% in 3Q reflecting the expansion of the company’s existing customer relationships.
Looking ahead, the company expects 2020 revenue (including the impact of Voxbone acquisition) between $326.6 million to $327.1 million compared to $232.6 million in 2019. It predicts adjusted EPS between $0.44 and $0.46 in 2020 compared to an adjusted loss per share of $0.23 in 2019.
Following the earnings release, Canaccord Genuity analyst Michael Walkley reiterated a Buy rating and a $225 price target, saying “We believe revenue growth should remain strong given our expectations for some permanent long-term changes with an increased remote work environment driving both increasing usage from existing customers and layering in the potential for stronger new customer growth.”
“Add to this increasing traffic in international markets, an accretive Voxbone acquisition to drive international growth, a small but fast-growing messaging business, and a large new cohort of customers onboarded with strong trends in 2020, and there are several reasons we are optimistic about growth and believe our updated estimates could prove conservative.” (See BAND stock analysis on TipRanks)
The Street is cautiously optimistic about Bandwidth stock. A Moderate Buy consensus is based on 4 Buys versus 1 Sell. Shares have risen a whopping 146.8% year-to-date and the average analyst price target of $192.20 implies further upside potential of 21.8% lies ahead.
Conclusion
Both Twilio and Bandwidth are well-positioned to benefit from the rapid transition of businesses to Cloud. However, Twilio currently appears to be a better investment as reflected in the Street’s more bullish stance and higher upside potential compared to Bandwidth.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment
