Twilio (NYSE:TWLO) has scripted a remarkable turnaround this year. The cloud communications specialist was suffering from a lack of investor confidence in 2017 after one of its key customers decided to multisource its business to reduce dependence on just one vendor.

But 2018 has brought about a massive change in perception. Twilio has made great market gains this year as Wall Street finally seems to be coming around to the fact that the company's terrific growth isn't a function of just one or two clients. In fact, Twilio has a lot going for it and it won't be stepping off the gas anytime soon.

Twilio logo in red

Image Source: Twilio.

Terrific customer traction

Twilio investors can no longer complain that the company is reliant on just a select group of customers. Last quarter, WhatsApp was its biggest customer with 7% of the company's total revenue, while ride-hailing specialist Uber, which was Twilio's Achilles Heel last year, supplied 4% of its business.

A year ago, Uber accounted for 12% of the company's total revenue when news broke that it would be exploring in-house contact center solutions, or even hire other third-party vendors to reduce reliance on Twilio. As a result, Twilio had to slash its full-year guidance at that time, but it didn't let this hiccup get in the way.

Instead, Twilio stepped on the gas as far as its customer acquisition efforts were concerned. It boosted its sales and marketing outlay by almost 54% last year to $100 million, which eventually helped it accelerate its client base.

Chart showing growth in Twilio's active customer accounts.

Data from Twilio's quarterly reports, Chart by Author.

In fact, Twilio saw a 33% jump in active customer accounts during the latest quarter, while revenue increased at a much faster pace of 48%. This means that Twilio is going after lucrative accounts instead of chasing small fish, and it is diversifying its customer base at the same time. As it turns out, the company's top active customers now contribute just 2% of the total revenue as compared to 25% in the year-ago quarter.

So Twilio is unlikely to face a problem of customer concentration anymore. And, it won't be surprising if it manages to sustain its impressive client growth rate in the future, as the market it operates in is just getting started. Twilio's communications platform connects apps and phone numbers, allowing the likes of WhatsApp, Uber, and others to interact with their customers from within the app.

In short, Twilio provides communications-platform-as-a-service (CPaaS), a market that IDC estimates will grow tenfold over its forecast period of 2016 to 2021. Not surprisingly, Twilio is putting its best foot forward to take advantage of such terrific growth by making its services accessible to more developers.

Twilio is at the beginning of its growth curve

Twilio has found out that software developers play the most important role in the buying decision of an organization. In fact, 55% of the developers in an organization influence the buying decision, while 22% are the primary decision-makers. By comparison, the CEO or CTO of an organization influences around a third of the buying decisions.

So getting developers on board has been one of Twilio's priorities to augment its business. The company had onboarded close to 2 million developers by the end of 2017, and this number could expand at a fast pace in the future thanks to its recently launched Flex platform, which is a fully programmable contact center solution that will drive the transition from legacy to modern contact centers.

The majority of the contact center market is currently legacy in nature, with the cloud penetrating just 10% to 15% of this space. This means that the majority of the organizations are still using traditional channels to respond to customer requests in place of initiating customer interactions proactively to address any current or upcoming issues.

However, the scenario is going to change rapidly over the next five years, with cloud penetration in contact centers slated to increase at an annual pace of 25% through 2022. This is where the flexibility and ease of use of Twilio's Flex platform could come in handy, helping organizations make the move from legacy systems to the cloud.

Twilio claims that Flex is programmable throughout the stack, so a developer could customize this platform according to the needs of his or her organization that has been relying on traditional methods. For instance, a developer could choose to build a cloud communications application that supports several channels.

Riding the change

Twilio could be at the forefront of the transition in the contact center industry thanks to its strategy of tapping the developer population. This should help it sustain its terrific top-line growth and also become profitable with time.

In fact, analysts expect the company's bottom line to increase at a CAGR (compound annual growth rate) of 20% over the next five years. But it could grow at a faster pace provided its execution remains top-notch and the end market's growth is as strong as expected, setting the stage for strong upside in the long run.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twilio. The Motley Fool has a disclosure policy.