Twilio (NYSE:TWLO) is often considered a "best in breed" player in the cloud communications market. Its platform -- which processes voice calls, text messages, video, and other content via the cloud for mobile apps -- simplifies the process for app developers by reducing a time-consuming task into a few lines of code.
Instead of developing those features locally, developers simply outsource those tasks to Twilio. Many popular apps, including Airbnb, Lyft, and Twitter, rely on Twilio's services. Its revenue surged 75% to $1.13 billion last year, as its dollar-based net expansion rate (its growth per existing customer) soared 136%.
Those growth rates turned Twilio into a hot growth stock after its IPO in mid-2016. The stock debuted at $24 a share, surged to $150 last July, and currently trades in the high $80s. It's been a volatile ride, but investors are drawn to Twilio because it's growing like a weed and doesn't face much direct competition.
Vonage's (NYSE:VG) Nexmo and Bandwidth (NASDAQ:BAND) are often cited as potential rivals, but neither platform has stifled Twilio's growth over the past four years. However, Twilio's investors should pay close attention to another rival, Amsterdam-based MessageBird, which was founded nine years ago.
How high can MessageBird fly?
MessageBird has an estimated valuation of about $300 million. It serves over 15,000 organizations, including Heineken, SAP, and even Uber (NYSE:UBER) -- which notably pivoted away from Twilio back in 2017.
Like Twilio, MessageBird processes voice calls, chat messages, and videos for companies. But unlike Twilio, which widened its net loss from $122 million to $307 million last year, MessageBird has remained profitable since its first year.
In 2017, MessageBird claimed to have been growing at "about 100%" over the past few years, and was on track to hit $100 million in annual revenue. At the time, MessageBird only had 75 employees, and claimed that generating over $1 million in revenue per employee was a "magic number" for the company.
MessageBird hasn't revealed its annual revenue or employee counts since then, but Crunchbase estimates that it could be employing up to 250 people. Based on its previous growth rates, we can estimate that MessageBird generates $200 million to $300 million in annual revenue today -- roughly a quarter of Twilio's annual revenue.
Twilio ended the year with 2,905 employees, which equals just $390,522 in revenue per employee. Twilio's generous stock-based compensation, which consumed 23% of its revenue, exacerbated its losses.
In short, MessageBird resembles a leaner, more efficient, and more profitable version of Twilio. That's why major investors -- including Silicon Valley-based Accel Partners, European venture firm Atomico, and seed-stage investor Y-Combinator -- are backing the start-up.
But will MessageBird threaten Twilio?
MessageBird is different from Twilio in two major ways. First, MessageBird focuses more on big enterprise customers instead of app developers like Twilio. Second, MessageBird mainly focuses on customers in Europe and Asia, while many of Twilio's top customers are located in the U.S.
Yet many parts of their businesses overlap. For example, MessageBird's Inbox, an all-in-one AI-powered contact center for enterprise customers, clearly takes aim at Twilio's comparable platform, Flex. Uber's decision to cozy up to MessageBird also raises a red flag.
MessageBird hasn't evolved into a major threat to Twilio yet, but investors should recall that another Dutch company, the digital payments company Adyen, hurt PayPal (NASDAQ:PYPL) after winning over its longtime partner eBay. It also pulled merchants away from PayPal's rival Square.
I'm not saying that MessageBird will be as disruptive as Adyen, but the parallels are tough to ignore. Therefore, Twilio's investors should keep close tabs on MessageBird's growth, and consider it a more immediate threat that Nexmo or Bandwidth.