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Twilio Investors: A 2020 Survival Guide

By Rick Munarriz - Jan 28, 2020 at 9:30AM

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The in-app communications leader was a dud in 2019, but the year ahead could be more promising.

Last year was ho-hum for Twilio (TWLO -0.75%) investors. Shares of the leading in-app communications specialist rose a modest 10% in 2019, sorely lagging the overall market's headier advance. Twilio was a rock star before losing to the market last year. The shares more than tripled in 2018, soaring 278% as one of the market's best performers. It's already off to a strong start in 2020, handily beating the market with its 23% return. Twilio has already more than doubled last year's gain, and it's only January.

The strong start to 2020 might not be a fluke. The new trading week kicked off with two analysts raising their price targets on the stock as a third initiated coverage of Twilio with a bullish rating. Let's take a look at how the year ahead can play out during what's shaping up to be a monster year for Twilio. 

Twilio running on a tablet that's being held by someone holding a cup of coffee.

Image source: Twilio.

Running of the bulls

Twilio is popular with developers of the biggest third-party apps on the planet. If a smartphone application can benefit from in-app communication -- everything from a password reset on a streaming site to having a rideshare driver alert you on arrival -- there's a good chance that Twilio is the one making the interactive magic possible. 

Once developers try Twilio on for size they tend to stick around, leaning more on the growing number of tools the tech leader provides. Net expansion rate clocked in at 132% in Twilio's latest quarter. Revenue also soared 75% over the past year, but that figure is inflated by the SendGrid acquisition that was completed in early 2019. Top-line gains will decelerate once we lap the anniversary of the deal closing later this week, but even Twilio's organic growth has been encouraging. 

It's easy to fall for Twilio's story. Smartphones are everywhere, and Twilio's fulfilling an important role in making apps smarter. 

Wells Fargo analyst Michael Turrin is initiating coverage of Twilio with an overweight rating. He concedes that growth comps will get more challenging at this point, and regulatory concerns in the telco market could get in the way of this otherwise great story. However, he ultimately sees encouraging opportunities in the near future, and his price target of $155 translates into nearly 30% of upside from current levels. 

The Wall Street pros at Northland and RBC Capital lifting their price goals to $140 seem to be reacting more to the stock's rally this month than an actual improvement in fundamentals. Twilio would have to climb just 16% to hit $140. However, both analysts could've decided to downgrade the stock as a result of its buoyant January. It's encouraging that they're nudging their price targets higher, even if it doesn't seem like a lot. 

The best thing about the three analyst moves is that it comes a week before Twilio itself is set to report its fourth-quarter results. The Feb. 5 report will be the last full quarter to benefit from the padding of the SendGrid acquisition, but three Wall Street cats putting out bullish notes on the same day suggests that it should be a blowout quarter. The analyst channel checks have been positive, and Twilio -- armed with 172,092 active customer accounts and counting -- is already winning back the crown it wore in 2018 as the leading cloud communications platform as a service

The two quarterly reports that follow will be critical, with the second-quarter report in early August being the first one where the revenue gains will be largely organic. If Twilio can keep growing at a decent clip and the market continues to be cool with paying hefty premiums for growth, the stock will do just fine in 2020.

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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