Twilio: communications platform as a service stocks will ride digital transformation


Cloud communication company Twilio lives at the mercy of high expectations. In the past quarter it beat forecasts for both revenue and earnings. Yet a slight dip in revenue growth from existing customers plus a higher-than-anticipated forecast for losses knocked the shares down 13 per cent.

This is unfair. Twilio is part of a sector that provides tools to companies such as Uber that want to integrate their communication services. These services via calls or messaging let them connect with customers or their own employees. The more that companies interact with people remotely, the more useful Twilio’s services become.

As the past 18 months have proved, completely virtual communications can work fine. Twilio’s share price has nearly quadrupled since the pandemic started.

Founded in 2008, the US group has been a leader in the so-called communications platform as a service sector (CPaaS). But competition is increasingly fierce, with Microsoft now in the fray. Spending to keep ahead is worthwhile. Twilio’s largest acquisition to date was a $3bn purchase of customer data company Segment last year. It will help users manage information.

Twilio is, unfortunately, not alone in trying to evolve into a full service platform, by expanding from text chat and calls to email. In 2018, it bought email platform SendGrid. Peers took notice. This year, Swedish rival Sinch purchased cloud email provider Pathwire.

But the $61bn San Francisco-based company is part of a broad, global digital transformation. CFOs are redirecting their budget to cloud-based services that can facilitate online operations. Gartner expects total spend to reach $397.5bn by 2022.

Focusing on quarterly dollar-based net expansion rates ignores the strength of this wider trend. An expansion rate of 131 per cent in the third quarter is down from 137 per cent in the same period last year. But it still proves that customers are spending more over time. They pay per service. As they grow, so does Twilio. In the past quarter, revenue rose 65 per cent to $740m. There is more to grab. In the next four years, the market is forecast to reach $14bn.

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