Like other technology firms, Twilio grew rapidly on expanding COVID-19 demand for its software. However, the stock is now down significantly from its September 2021 peak of $400.
The slide has prompted activist investors to demand the company slash costs or put itself up for sale. Even without major moves, we feel the firm has strong prospects for a rebound and long-term growth.
Meanwhile, the stock trades at 18.0 times the company’s 2024 earnings forecast.
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TWILIO INC. (Symbol TWLO on Nasdaq; www.twilio.com) offers a key service to software developers who create mobile apps. Specifically, its own software is used to connect apps to essential functions elsewhere on a device, including dealing with phone calls and messaging.
Twilio has appointed a partner at activist investment firm Sachem Head Capital Management to its board of directors. The company made the move in the face of pressure from several activist investment firms looking for significant changes.
Twilio added Andy Stafman and expanded the size of the board by one person for a total of 10 directors.
The change removes the chance of a boardroom challenge from Sachem Head in 2024 when three Twilio directors, including CEO Khozema Shipchandler and board Chairman Jeff Epstein, are scheduled to stand for election.
The company has come under pressure from Sachem as well as other activist investors including Legion Partners and Anson Funds. All have been pushing the company to explore strategic alternatives, including divesting itself of its data and applications business or selling the whole company.
Growth Stocks: Twilio’s operational efficiencies explode earnings as the client base expands
While new CEO Khozema Shipchandler plans to focus on reducing costs instead, mainly through job cuts, a takeover by a larger technology firm remains possible.
In the quarter ended March 31, 2024, revenue rose 4.0%, to $1.05 billion from $1.01 billion. The company continues to add to its client base, with a growing emphasis on markets outside of North America; it now has 313,000 active customer accounts (up 4.3% from 300,000 a year ago).
Excluding one-time items, Twilio made $0.80 a share in the latest quarter. That was up 70.2% from $0.47. The big earnings jump came from improved operational efficiencies, as well as reductions in marketing and other costs.
The company holds a huge cash balance of $3.8 billion. Its long-term debt is just $989.4 million.
Twilio’s outlook is positive, and the activist pressure only serves to highlight the company’s potential. Meantime, Twilio’s impressive customer base, leading products and high R&D (over 30% of sales) all bode well for the company’s future success in rapidly growing markets.
Recommendation in Power Growth Investor: Twilio Inc. is a buy.
