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7 Fascinating Things to Know About Twilio

By Brian Withers – Updated Dec 3, 2019 at 10:21AM

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These facts just might have you adding this stock to your “watch closer” list.

Your phone buzzes with a text reminding you of your medical appointment. It's likely that the text was initiated with communications software from Twilio (TWLO -0.40%). Its stock has been on a tear since the beginning of 2018, climbing more than 500% to its all-time high in late July of this year. But it has pulled back more than 30% since, making some investors take notice of what might be a better price at which to get in on the stock.

TWLO Chart

TWLO data by YCharts.

Here are seven facts that might make you interested in learning more.

1. It has a really big market

In 2017, Gartner estimated that global information technology (IT) budgets spent on communications was $1.4 trillion. Twilio's products play in this space, but the old way of doing things is not a direct comparison to its opportunity. Its software replaces a complex legacy system of network and telecom hardware, customized applications, and IT expert consultants with easy-to-use developer software applications that are less expensive and quicker to implement.

For its core product, the programmable communications cloud, IDC estimated its total addressable market (TAM) at $45 billion in 2017. Current-year revenue projections put its market share at a paltry 2.4%. But there's even more opportunity, since the TAM doesn't include some newly released products.

computer network connecting data to charts and trends with globe in background

Get to know this cloud computing company a little better. Image source: Getty Images.

2. It's into call center management and the Internet of Things

In October 2018, Twilio announced general availability of two new products: Flex and a developer kit for narrowband Internet of Things (IoT) devices. Flex is a product that allows customers to easily set up and run customer contact centers. Lyft is a notable customer that has implemented Flex to assist drivers, customers, and its associates to ensure a great experience for every ride. These two products are in the early-adopters stage, but the company sees a long runway of opportunity, especially because of its go-to-market approach.

3. It's a developer-first platform

Software developers play an "influencer" or "key decision-maker" role 77% of the time when companies make technology purchases, and Twilio caters to them. They find it easy to download the application and get started building messaging capabilities. More than 7 million developers have registered on the platform and likely have a good understanding of what it can do. Once exposed to the platform, developers might immediately see opportunities to use the software or be involved in discussions down the road about how it could be used as a solution.

Developer-advocates help provide the introduction to Twilio, but its usage-based model gives customers a low-cost way to get started.

4. More than 80% of its revenue is usage based

Even though the company sometimes gets lumped in with other software-as-a-service (SaaS) companies, more than 80% of its revenue is based on actual usage, not subscriptions. As a communications tool, Twilio charges customers a small fee for each communication message (i.e., a text, call, or email).

This pricing structure has the benefit of customers piloting the software without committing lots of money up front. Once they're hooked on the platform, they tend to spend more every year.

5. Its dollar-based net expansion rate is impressive

Dollar-based net expansion rate (DBNE) measures the money spent by customers this quarter versus the same quarter a year ago. Over the last seven quarters, this metric averaged 140%. This is a great measure for investors to watch to understand how much of the top-line growth is coming from existing customers. A 132% DBNE rate this quarter helped power organic revenue growth of 47% over the previous year (before adding in the impact of the SendGrid acquisition).

These growth numbers are pretty impressive, but investors should know the company is just getting started with growth internationally.

6. It's still predominantly a U.S.-based company

Its communication software is available in 180 countries around the globe, but a large portion of the revenue is generated domestically. Last quarter, $211 million or 72% of the company's revenue came from the U.S. Even though international revenue grew 95% year over year to $84.1 million, it is only up 2 percentage points from last year's mark of 26%.

A 213% increase in international customer accounts this quarter bodes well for the future, because the trend to start small and grow should play out with international customers too. It won't be a surprise as non-U.S. revenue grows to become a much larger contributor to the whole in the coming years.

7. The CEO is a serial entrepreneur

Not only is CEO Jeff Lawson a co-founder of Twilio, but he's also been a founding member of three other start-ups, including the well-known StubHub. His impressive Glassdoor CEO approval rating of 94% shows that this experience has prepared him well for his current role and that the company employees, also known as Twilions, trust his leadership abilities.

This communications software platform has a lot going for it: a huge market, loyal customers spending more every year, impressive growth numbers, and an experienced founder guiding the ship. Although the stock is not without risk, you might consider putting this fast-growing tech company on your watch list.

Brian Withers owns shares of Twilio. The Motley Fool owns shares of and recommends Twilio. The Motley Fool has a disclosure policy.

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