When Twilio (NYSE:TWLO) announced its third-quarter financial results, there was a lot to like. The company reported impressive revenue and earnings results, but there were also other factors at play. One metric, in particular, illustrates why Twilio has a long runway for growth ahead.
In this Earnings Review that aired on Fool Live on Oct. 28, Fool.com contributors Asit Sharma and Danny Vena discuss out one of the more revealing facets of Twilio's results, and why it's so important for future growth.
Danny Vena: While we're here, I just want to scroll down to one more chart here. This is the dollar-based net expansion rate chart, going back. You can see from this chart that management has had a really solid, consistent measure of increasing growth from their existing customer base. Like you said, over 130%. It's been over 125%, has been the lowest that it's been going all the way back to Q3 '18, so over two years. Still, even at 125%, that is a really solid number when you're talking about software-as-a-service companies and increasing the value of your existing customer base.
Now, the reason that I pointed that out is because when you're dealing with software-as-a-service, there's a couple of different ways that these companies grow. One obviously is by acquiring new customers, and two is expanding their relationship -- "land and expand" that Asit was talking about earlier. What I really like about this is, this provides a really good explanation for why these companies, so often particularly early in their life cycle, end up not producing net income and their bottom line is suffering. Because what they're doing now is they're spending heavily to acquire these customers. Because the lifetime value of these customers is much more than what the company is spending to acquire them. That's basically the argument for investing in software-as-a-service and cloud-based stocks.