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Don't Bet Against Twilio Stock

By Rick Munarriz - Jul 17, 2019 at 9:15AM

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The cloud-based communications specialist gets another bullish analyst note two weeks ahead of critical quarterly results.

One of the market's hottest stocks over the past year and a half is still going strong. Twilio ( TWLO 3.58% ) has been a six-bagger since the start of last year, and at least one Wall Street bull feels that the shares of the in-app communications solutions provider still have legs.

Patrick Walravens at JMP Securities issued a bullish analyst note on Twilio this week, reiterating his earlier outperform rating on the stock. His checks with third parties indicate that low-level business development reps are having such a hard time keeping up with inbound leads that they don't have the time -- or the need -- to try to sell Twilio to folks who aren't initiating contact with the market darling.

Twilio client running on a tablet while someone drinks a cup of coffee.

Image source: Twilio.

It all apps up

Walravens has a $160 price target on the shares, below the Street-high of $175 but still suggesting a reasonable amount of upside for a stock that has soared 505% since the end of 2017. Twilio has captured the interest of growth investors given its pole position for mobile developers seeking to make their apps more engaging. Consumers don't know that Twilio is at work when Airbnb is checking on their rental requests with property owners or when Handy cleaning services are contracting them on arrival, and they don't have to. It's developers who know all about Twilio's cloud-based platform that facilitates communication without ever having to leave a popular app.

Twilio is living up to its end of the bargain for growth investors. Revenue gains have accelerated for five consecutive quarters, nearly doubling in that span of time by going from 41% to an 81% pace in its latest quarter. Though Twilio isn't generating much of a profit, its adjusted earnings have blown through Wall Street targets with ease in three of the past four quarters.

Growth won't accelerate forever, but that's not a deal breaker. Analysts see revenue slowing to 71% for all of 2019, only to see that rate cut roughly in half next year. Reality should be kinder for Twilio's growth trajectory, as long as it can remain the undisputed top dog in this booming field. 

We'll get a clearer snapshot at the end of this month when Twilio steps up with its second-quarter financials. Will it be the end of the heady run of accelerating top-line growth? Wall Street thinks it will be -- eyeing 79% in top-line growth -- but analysts have underestimated Twilio's potential before. Will Twilio's dollar-based net expansion rate continue to clock in above 100%, a great sign of platform retention? Is the pool of developers leaning on Twilio growing? Are new platform offerings in the works? There are a lot of questions for investors to unpack in two weeks, but there's no point in unloading the stock until the answers start becoming unsatisfactory.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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