Twilio (TWLO 1.47%) empowers companies to improve their customer communications. Its customer engagement platform (CEP) enables clients to build direct and personalized customer relationships.
At its core, Twilio is a cloud communications platform-as-a-service company. It provides customers with a platform to build applications to send voice, video, and text messages.
In addition, Twilio has a rapidly growing data and applications business. The company aims to help customers leverage their data with software powered by artificial intelligence (AI) to enhance customer engagement.
Twilio believes it's just scratching the surface of its potential to help companies improve their communication with customers. The communications technology company estimates that the total addressable market for messaging will reach $32 billion in 2025 (up from $26 billion in 2022). That provides a long runway to continue growing revenue at a healthy clip and, eventually, profitability.
Twilio's growth potential likely has many investors interested in the possibility of investing in its stock. Here's a step-by-step guide on how to buy shares of the telecommunications stock and some factors to consider before adding it to your portfolio.
How to buy Twilio stock
How to buy Twilio stock
You'll need to take a few steps before buying shares in Twilio (or any other stock). Here's a step-by-step guide to adding the cloud communications company to your portfolio.
- Open a brokerage account: You need to open and fund a brokerage account before buying shares of any stock. If you need to open one, take some time to research the brokers to find the best one for you.
- Figure out your budget: Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. You don't have to get there on the first day. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.
- Do your research: It's essential to thoroughly research a company before buying its shares. You should learn about how it makes money, its competitors, its balance sheet, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term.
- Place an order: Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:
- The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
- The stock ticker (TWLO for Twilio).
- Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.
Once you complete the order page, click to submit your trade and become a Twilio shareholder.
Should you invest?
Should I invest in Twilio?
Doing research is essential before buying any stock. It could change your mind about buying shares or further enhance your conviction that shares are a worthwhile investment. Here are some reasons why you might want to buy shares of Twilio:
- You're seeking investments with above-average growth potential.
- You like to invest in founder-led companies.
- You understand the company's business model, including that it's a usage-based system that's more sensitive to changes in the economy.
- You're interested in companies seeking to capitalize on the potentially massive opportunity for AI.
- You believe Twilio will eventually start making a profit.
- You prefer to invest in financially strong companies with cash-rich balance sheets.
- You don't need dividend income from your investment.
- You understand the risks, including the possibility that shares of Twilio could lose value.
Dividend Income
On the other hand, here are some factors to consider that might lead you away from buying shares of Twilio:
- You don't understand what Twilio does or how it makes money.
- You think the hype surrounding AI is overblown.
- You're in or nearing retirement and need investments that produce income.
- You're unsure that Twilio will ever become profitable.
- You're seeking investments with lower volatility.
- You're worried that a recession could significantly impact Twilio's growth.
Stock Ticker
Is it profitable?
Is Twilio profitable?
Digging into a company's profitability is a vital aspect of an investor's research. That's because profit growth tends to drive a company's stock price over the long term.
Twilio had yet to turn the corner on generally accepted accounting principles (GAAP) profitability as of mid-2023. During the second quarter of 2023, Twilio reported a GAAP loss from operations of $141.8 million on slightly more than $1 billion of revenue (up 10% year over year). On a more positive note, that was a significant improvement from the year-ago period when it reported a GAAP loss from operations of $311.9 million.
While the company isn't profitable on a GAAP basis, it's producing non-GAAP (adjusted) earnings. During the second quarter of 2023, Twilio reported $120.1 million of non-GAAP income from operations, a meaningful improvement from a $7.3 million non-GAAP loss from operations in the prior year period. It's also producing free cash flow.
Twilio took additional steps to accelerate its ability to turn the corner on GAAP profitability in 2023. It reduced its workforce by 17% and planned to pursue other cost-saving moves. It also sold a couple of non-core businesses in 2023 as it focused on improving its core operations' profitability. The company believes that these actions and continued revenue growth to increase its scale will enable it to eventually get into the black and deliver consistent profitability.
Dividends
Does Twilio pay a dividend?
Twilio didn't pay dividends to shareholders as of mid-2023. The company also didn't anticipate initiating a dividend in the foreseeable future. It's reinvesting most of its cash flow to grow its business.
While Twilio doesn't pay dividends, it has started returning cash to shareholders by repurchasing stock. It launched a $1 billion share repurchase program in early 2023 that expires at the end of 2024. It had completed half that program by mid-2023 and planned to continue making progress toward completing the remaining authorization.
ETFs
ETFs with exposure to Twilio
An alternative option to directly buying shares of Twilio is to consider passively investing in the company through a fund that holds its shares. One of the most common passive investment vehicles is an exchange-traded fund (ETF).
Exchange-Traded Fund (ETF)
According to ETF.com, 144 ETFs held 18.5 million shares of Twilio as of mid-2023. The largest holder was the Ark Innovation ETF (ARKK 1.05%), an actively managed ETF overseen by the well-known Cathie Wood. The ETF held 5.1 million shares in mid-2023, making it the fund's ninth-largest holding at almost 4% of the total. That makes this ETF a potential option for investors seeking passive exposure to Twilio.
Meanwhile, another ETF managed by Wood, the Ark Fintech Innovation ETF (ARKF 1.97%), had an even larger allocation to Twilio at 5.7% in mid-2023. It was the fund's fifth-largest holding. Its larger exposure to Twilio makes this ETF another possible option for investors seeking some passive exposure to Twilio.
Related investing topics
Stock splits
Will Twilio stock split?
Twilio didn't have an upcoming stock split as of mid-2023. The company hasn't completed a stock split since its initial public offering (IPO) in 2016.
Twilio could split its stock in the future. Shares have gained significant value since its IPO price of $15 a share, reaching more than $65 per share by mid-2023. Twilio could split its stock if shares keep rising to ensure it remains accessible to more investors.
The bottom line on Twilio
Twilio built a powerful communications platform to help companies improve their customer communications. The company is steadily bringing new clients onto its platform, driving healthy revenue growth. It sees a huge growth runway ahead, especially as it starts leveraging the power of AI. Twilio's continued revenue growth and eventual profitability could drive its stock price much higher in the future.
However, the communications stock isn't for everyone. It still needed to turn the corner on profitability, which could impact its ability to grow shareholder value over the long term. Investors need to carefully consider the risks and reward potential before investing in Twilio stock.
Investing in Twilio FAQ
Is Twilio undervalued?
Twilio had a market capitalization of almost $12 billion in mid-2023. With its revenue on track to surpass $4 billion in 2023, it trades at a price-to-sales (P/S) ratio of about three times. While Twilio is growing fast, it's hard to describe a company with a P/S ratio as undervalued.
Is Twilio overvalued?
Twilio had a market cap approaching $12 billion in mid-2023. That put its price-to-sales ratio at about 3, given its revenue projection of $4 billion. That's a lofty valuation for a company that isn't yet profitable. While the company could eventually grow into its valuation, it seemed a bit overvalued, especially for investors who prefer traditional profit-based valuation metrics.
Is Twilio in debt?
Twilio had $988.2 million of long-term debt on its balance sheet at the end of the second quarter of 2023. However, the company had an overall net cash position. It had $675 million of cash and equivalents on its balance sheet and $3 billion of short-term marketable securities. That gave it almost $2.7 billion in net cash.
