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Is Twilio a Buy?

By Rick Munarriz – Jun 19, 2019 at 9:15AM

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The cloud-based communications specialist has been a six-bagger since the start of last year, but the party may not be over.

One of last year's hottest stocks is still lighting it up in 2019. Twilio (TWLO 1.40%) nearly quadrupled in 2018, and it's not done making its shareholders rich. The leading provider of in-app communication solutions is trading 59% higher so far this year, hitting fresh all-time highs last week.

Twilio is in the right place -- or, more specifically, the right apps -- at the right time. Twilio arms developers with the tools to make their smartphone apps more efficient, and the proof is in the growth pudding. Revenue surged 81% in its latest quarter, with its base revenue growing even faster. Revenue has accelerated for five consecutive quarters, and Twilio's growth rate has doubled in the process. The stock has been a wealth-altering game changer for the past year and change -- a six-bagger since the start of last year -- but have the gains outpaced the improving fundamentals? Let's explore why Twilio is still a buy at current levels.  

A pair of hands holding a cup of coffee on the right and a tablet with the Twilio client app running on the left.

Image source: Twilio.

Bulls keep coming

Popping sixfold over the past 18 months is one way to make sure you ping on more analyst radars, and this week it's Richard Valera at Needham initiating coverage of Twilio. He's inspired by the market darling's strong early market position as well as its comprehensive platform and efficient sales model. He sees Twilio's ability to seamlessly integrate all forms of digital communication within apps as a winner for both native apps where it's currently feasting to the more traditional enterprises that will inevitably make the digital migration. 

Valera is starting his coverage of the stock with a buy rating. His price target of $165 suggests just 16% of upside from where the stock is now. Even the Street high here -- Monness Crespi Hardt boosted its price goal to $175 last month -- implies just an increase of 23%. However, we've seen this before. Twilio may seem to be closing in on the ceiling, only to come through with another blowout quarterly performance. 

Wall Street still can't catch up to Twilio. It has clocked in with adjusted earnings that are more than triple analyst expectations in two of the past three quarters. Revenue growth keeps accelerating. Twilio's dollar-based net expansion rate continues to check in well north of 100%, proof that developers continue to lean on its growing array of communication solutions more and more with every passing quarter. 

No stock rises indefinitely, and Twilio will have its date with at least near-term mortality eventually. However, as long Twilio keeps hitting out of the park every quarter and consumers continue to rely on smartphone apps to make their lives more convenient, you don't want to bet against Twilio. 

Rick Munarriz 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.

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