Twilio (NYSE: TWLO) shares have outperformed since it became a public company. This outperformance has accelerated during the coronavirus as the pandemic has led to an increase in demand for its communication software. Even during the market's recent dip, it's managed to maintain its breakout to new highs.
Twilio's software is at the back-end of several apps and services. It allows developers to build in the ability to make and receive phone calls, send and receive text messages, and other types of communication through its API. It's the dominant company in this niche.
Inside the Numbers
Twilio's recent quarter confirmed the strength and momentum of its business as sales and earnings topped analysts' expectations. However, shares were slightly lower as guidance came in below expectations. During the quarter, Twilio made a deal to acquire Segment for $3.2 billion in stock.
In Q3, Twilio earned $0.04 per share, up $0.01 from 2019. Revenue increased 52% to $448 million from last year's $288 million in Q3. Analysts were looking for a $0.03 loss on revenue of $409.8 million.
Twilio saw growth in revenues from existing customers at 137%. This is an important metric for SaaS businesses which shows if customers are increasing engagement with the product. Twilio increased the number of customers to 208,000 a 21% increase.
For Q4, Twilio expects revenue between $450 million and $455 million, vs. analyst estimates of $437 million.
Stock Price Impact
Twilio's stock was down 1% following the report. In recent days, it's moved about 15% off its highs. Since going public in 2016, Twilio's stock is up 1,780%. During this time, its increased revenues from $278 million to $1.2 billion. However, the market's perception of its total market size has significantly expanded.
It's overvalued by any conventional measure with a price to sales ratio of 30 and market cap of $42 billion. Growth investors are more likely to focus on the company's 46% growth rate and 53% gross margins. It does expect to turn profitable next year on a 12-month basis which is an important milestone.
Twilio is up 68% from its March lows. In recent weeks, it looked to be on the verge of breaking out but the market selloff has caused it to retest its breakout level. So far, this is a healthy move lower but there could be downside risk given that Twilio is so overbought and overvalued by many measures.