Twilio (NYSE:TWLO) went public earlier this year to incredible success. In this segment from Industry Focus: Tech, Motley Fool analysts Dylan Lewis and David Kretzmann talk about two metrics that investors can use when evaluating Twilio's performance -- dollar-based net expansion rate and active customer accounts -- and how Twilio has grown them since its IPO.
A full transcript follows the video.
This podcast was recorded on Sept. 30, 2016.
Dylan Lewis: The second thing that I think it's really important to keep in mind with this company, is the number of their dollar-based net expansion rate. What this figure does is it compares the revenue from a cohort of active customer accounts, other than their variable customer accounts. People that were base customers and had contract commitments a year ago to the most recent quarter. Basically, this is a measure of Twilio's ability to get existing customers to continue to spend, either through increased product usage, maybe extending into new use cases and integrating other elements of their building block platform, or branching out and building their own customer base, which is something that you want to see from people that are using your products.
David Kretzmann: Exactly. Taking a higher-level look at dollar-based net expansion rate -- they have a lot of complicated terms at Twilio, and that's something that I don't necessarily like. As an investor, I would rather that a company simplify this for investors. They have a lot of insider jargon still. I wouldn't be surprised if they tried to simplify that going forward. But since they're right off the tail of a hot IPO, they don't have to worry about that right now. Down the road, I think they will have to simplify their statements. But, I look at dollar-based net expansion rate, it's really a measure of how much more or less existing customers or active customer accounts are spending compared to last year's quarter. So it's a comps number, and definitely an important one to watch. It has been expanding much faster than total sales as a whole. That gives us an indicator that the existing customers from the past year are spending more time, more money using Twilio's products and making up a bigger portion of total sales, which we definitely like to see.
Lewis: Listeners, if you're still lost with this idea, I know there's a lot of hyphens in dollar-based net expansion rate, you can think of this figure as comps, like you talked about, or same-store sales, the way a retailer or a fast-casual restaurant would have. What you had last year, and what you have this year, comparing to see, is the growth coming from your existing base of restaurants or your existing base of customers, or is it coming from you growing new customers? You want to see both.
Kretzmann: Yeah, you want to see both, but it's a great sign that you have a product that people like/need, if your existing customers are spending more every quarter, every year. So far, for Twilio, it's been very impressive, what this number has been.
Lewis: Yeah, Q2 2016, it clocked in at 164%, which is pretty amazing.
Kretzmann: That's actually an acceleration from the same quarter last year. That number is accelerating. It's already very impressive growth, but to see it accelerating, we love to see that even more.
Lewis: Yeah. The third metric I think is important to keep an eye on is active customer accounts. Active customer accounts, as Twilio defines it, is an individual account that has generated at least $5 of revenue in the past month of any period. As of Q2, the company's active customer accounts were just over 30,000, up from 21,000 a year earlier. You're seeing nice, steady growth there. If you're looking at some of the key growth metrics for this business, they are growing customer accounts, and they're also gaining more value from the customer accounts they had a year ago, two things that you really like to see.
Kretzmann: Right, and the active customer accounts number, that's almost tripled since 2013, when they had about 11,000 active customer accounts. Now, like you said, it's over 30,000. You love to see that number growing, and then the money that those customers are spending growing, and so far, Twilio has both of those tailwinds behind its back. That's part of the reason the company is putting up some impressive growth numbers right now.
Lewis: Yeah, Wall Street has certainly been impressed so far. Pushed the business into a pretty gaudy valuation.