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How Twilio Crushed Expectations for the Quarter

By Motley Fool Staff – Nov 15, 2018 at 11:04AM

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The business app upstart is still not GAAP profitable, but its adjusted numbers exceeded the analysts' consensus estimate.

Software company Twilio (TWLO -4.51%) creates apps that businesses use for communication management -- its biggest customers are WhatsApp and Uber -- and its revenue and client base are growing at a frenetic pace.

In this segment from Motley Fool Money, host Chris Hill confers with senior analysts Jeff Fischer, David Kretzmann, and Jason Moser about precisely what this behind-the-scenes tech company does, the advantages it has in its market, and more.

A full transcript follows the video.

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This video was recorded on Nov. 09, 2018.

Chris Hill: Shares of Twilio up big this week. The cloud computing company crushed expectations for the third quarter. Shares of Twilio up more than 30%. Not bad, Jeff, when you consider this company still is not profitable.

Jeff Fischer: Awesome. It's a $9 billion market cap now. As Jason was talking about appification, baby, maybe, basically making content into apps, Twilio is making communication into apps. It lets programmers easily put communication capabilities into any software that's out there using an API. That's what they're doing. Their biggest customers are WhatsApp and Uber. Anytime you use them to communicate with the other party, you're using Twilio's cloud and software.

Revenue was up 68%. Almost even more impressive is dollar-based net expansion rate of revenue, which was 145%. That means where they earned $1 from a customer a year ago, they earned $1.45 this time because usage is growing. They're offering more and more products on top of what they offer. It's a phenomenal story where they're growing customers, they're growing revenue because of that, but they're also growing revenue based on usage, as well.

Hill: When you look at the cloud computing space, yes, this is impressive, the growth that Twilio has. It's close to $10 billion in market cap. That's a fraction of companies that they're competing against in Microsoft, Amazon with AWS, etc. Is this a company that you feel like has a little bit of a moat? Or is someone going to come in at some point and just make them a big offer?

Fischer: I do believe they have a good moat. The CEO, Jeff Lawson, worked at Amazon before Twilio, along with a few other start-ups that did well. Years ago, they set up a worldwide network of communications by signing agreements and whatnot so that you can use their services anywhere. That's tougher to do than it sounds like. And, their software is years ahead of other people. It's really programmer-driven because it allows you to customize it exactly how you want it. That creates a stickiness, too. They're in a giant industry, and they have a great lead, and I think they could maintain much of it.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of AMZN. Jeff Fischer owns shares of AMZN and has the following options: short November 2018 $81 puts on Twilio. The Motley Fool owns shares of and recommends AMZN and Twilio. The Motley Fool owns shares of MSFT. The Motley Fool has a disclosure policy.

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