Twilio Stock Has Too Many Red Flags That You Can’t Ignore
Source: Tada Images / Shutterstock.com
Twilio (NYSE:TWLO) operates in a booming sector, and its products sound very useful for small and medium businesses. Still, the company has a few red flags, making TWLO stock unappealing and a sell.
Among these warnings signs are slowing revenue growth and a deceleration of spending on the company’s products by its existing customers. Both of those trends could indicate that Twilio’s competition is heating up. Also worth noting is that the stock’s valuation and the company’s stock-based compensation levels remain quite elevated.
| Ticker | Company | Current Price |
| Twilio | $100.82 |
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
A Hot Sector and Very Useful Products
Earlier this month, Computer Weekly columnist Maxwell Cooter wrote that “Companies, it seems, can’t get enough of communications platform as a service (CPaaS).” He added that, “These are boom times for the technology — a study from Juniper Research predicts that, worldwide, the CPaaS industry will be worth more than $34bn by 2026.” As a leader in the CPaaS sector, Twilio is well-positioned to benefit from the space’s strong growth and powerful prospects.
On the product front, Twilio’s offerings appear to give small-and-medium businesses a relatively inexpensive, flexible communications platform that can be easily ramped up as companies grow. More specifically, Twilio sells comparatively simple software that gives companies the ability “to build the exact customer experience … [they] want with the specific capabilities … [they] need.”
What’s more, Twilio has unveiled a system called Twilio Flex, which, according to the company, provides businesses with even more ease-of-use than the firm’s prior offerings and “unlimited customization.” So basically, it sounds as though Twilio enables firms to build their own communications systems relatively cheaply and easily, while providing them with the ability to very simply add new features and allowing them to support a growing number of users.
Supporting my positive view of the company’s products, Twilio’s sales continue to grow rapidly. For example, last quarter the company’s top line jumped 48% year-over-year.
Troublesome Trends for TWLO Stock
Twilio’s growth appears to be materially slowing. Excluding the impact of acquisitions, its top line climbed 35% YOY in Q1, down from 42% in all of 2021. And for the current quarter, it has predicted that its sales, excluding acquisitions, will climb 27%-29%. And perhaps even worse, Twilio’s revenue growth “per existing customer” has trended downward over the past 12 months.