EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Twilio has Roadmap for Long-Term Revenue and Margin Growth; Raising FVE to $130

We are raising our fair value estimate for Twilio to $130 per share from $89, while changing our moat rating from none to narrow and maintaining our positive moat trend. We are upgrading our moat rating to narrow because of reduced concern about customer concentration and development of engagement cloud offerings such as Flex.

Twilio is a communication platform-as-a-service (cPaaS), which developers can utilize to facilitate communication (text, voice) in 180 countries. cPaaS platforms enable individuals or enterprises to integrate real-time omnichannel communication tools into business applications. Twilio operates as the back-end communications infrastructure for companies and provides easy-to-use APIs to allow integration with a customer’s applications. Simple examples of such integrations include enabling two-factor authentication for a website or enabling push notifications to remind a customer about a dinner reservation. Many of the uses for Twilio offer greenfield opportunities and we believe Twilio has ample opportunity to grow revenue over the decade as it continues to expand applications for its platform.

Twilio has three application layers that work in conjunction to support developers: super network, programmable communications cloud, and engagement cloud. Through its super network, Twilio connects with 3,000 global network service providers (nearly double the relationships of its closest competitor) and ensures communications are routed most efficiently and effectively through the network. The programmable communication cloud allows developers to connect to the super network using easy-to-use APIs. The APIs are used to embed voice, text, and video into applications. Engagement cloud consists of pre-built APIs for specific use, such as Apache Flex for contact centers. We believe the super network relationships are most difficult to replicate and Twilio’s developer-friendly APIs make it the default communication platform.

We believe Twilio’s reported user metrics are a strong indication of customer utility and costs of switching away from Twilio’s communication platform. Twilio’s active number of customers (over 64,000) has more than doubled since 2014, with a dollar-based expansion rate of 140%. SendGrid, a cloud-based email platform which Twilio acquired in February 2019, has also posted strong growth and user metrics. The company reported 113% net dollar retention rate in the third quarter of 2018 with 78,000 customers.