Twilio (TWLO 3.61%) and Qorvo (QRVO +0.34%) have failed to live up to investors' expectations over the past year. While investors were shook up when Twilio announced in May 2017 that key customer Uber would switch to in-house solutions for cloud-based communications, Qorvo's business shrank because of stiff competition in the smartphone space.
But both companies are off to bright starts this year -- as evident from the chart above -- thanks to strong earnings reports. Furthermore, Twilio and Qorvo have promised investors that business will improve, setting up a comeback after last year's disappointment. Let's look at what could work in favor of their turnarounds.
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Qorvo can strike gold in mobile
Qorvo's mobile business struggled last year as competitors Skyworks Solutions and Broadcom succeeded in landing more content at smartphone giant Apple. With Qorvo's iPhone-related business stagnating, it was hurt significantly, as Apple reportedly had supplied 40% of its total revenue.
Not surprisingly, Qorvo issued muted guidance for the quarter including March, calling for just 1% revenue growth, while analysts were looking for a meatier 20% increase. Still, the market gave the chipmaker an olive branch because of a potential contract win that could give it a massive boost toward the end of the year.
In response to a question on the latest conference call about content gains at its largest customer (presumed to be Apple), Qorvo management said that the company will witness "the largest actual generation-over-generation content increase we have seen, driven by many product categories" in the second half of 2018. Nomura analyst Krysten Sciacca says Qorvo has won the lucrative mid/high-band power amplifier duplexer spot for the iPhone that was earlier held by Broadcom.
That design win could lead to windfall gains for Qorvo when Apple's next-generation iPhones come out. Sciacca said it could add anywhere between $230 million and $305 million to Qorvo's revenue during the second half of the year -- quite substantial considering that the chipmaker's revenue during the second half of calendar 2017 stood at $1.66 billion.
But this isn't the only catalyst for Qorvo. The company's infrastructure and defense products (IDP) revenue shot up 20% year over year last quarter, driven by an increase in demand for its Internet of Things-related chips in this space. IDP revenue totaled $203 million in the third quarter. More important, the company looks to be all set to sustain the terrific momentum in the IDP segment, having recorded a 40% jump in design wins in this segment last quarter.
These catalysts have encouraged analysts to raise their growth forecasts for Qorvo. The company's top line is expected to jump more than 11% in the upcoming fiscal year after an estimated 2.3% decline in the current one. With the stock trading at a forward earnings multiple of 12 -- significantly cheaper than the 35.7 industry average -- Qorvo is an attractive turnaround play.
Twilio's customer traction is winning investors over
Twilio's latest quarterly report clearly shows that it has managed to put the Uber upset behind it. The cloud communications specialist has turned in consistently strong revenue growth in recent quarters by trying to attract smaller customers and reduce concentration on a select few accounts.
The company's active customer accounts grew to 48,979 at the end of the fourth quarter, an impressive 34% spike over the year-ago period. Thanks to this jump, messaging service WhatsApp is now Twilio's largest customer, with just 7% of revenue, while Uber's contribution has fallen to 5%.
More important, the spike in Twilio's customer accounts is filtering down to its financials. Last quarter, the company's revenue grew 41% year over year, while its base revenue shot up 40%. According to Twilio, the base revenue is a more reliable indicator of future growth as it excludes customer accounts that haven't struck a minimum revenue-commitment contract for a term of at least 12 months.
Twilio's base revenue now accounts for over 91% of its total top line, so the majority of its customers are locked in for longer periods. Thanks to this improving customer traction, Twilio expects revenue in the new year to improve 28% to $510 million. This is significantly higher than the $481.4 million in revenue that Wall Street was looking for.
Furthermore, Twilio is expected to soon launch a feature that will allow its customers to build a full contact center for handling all customer contacts, according to TechCrunch. So far, the company has offered separate application programming interfaces to customers that can be integrated into their contact center solutions, but now it is probably looking to bundle all these services so that businesses can build a complete contact center solution from scratch.
Twilio is making a smart move if it is indeed going after this space. According to MarketsandMarkets, the cloud-based contact center market could be worth $15.6 billion by 2021, growing at a compound annual growth rate of 23.6%.
Twilio's stock isn't cheap -- its price-to-sales ratio of 8.1 is significantly higher than the 6.3 industry average. Still, Twilio seems to be worth the premium thanks to its rapid revenue growth, which should eventually translate into a massive bottom-line bump. Analysts estimate the company's earnings will grow at 20% a year for the next five years, which would make it a good bet for growth-oriented investors.
