Twilio (TWLO +0.38%) and Fulgent Genetics (FLGT +2.31%) delivered returns of 228% and 317%, respectively, in 2020, even as the COVID-19 pandemic wreaked havoc on various industries and (for awhile) the market. Both businesses made some smart moves in 2020 that should continue to benefit them well into the future -- putting them in a great place to potentially double your money in 2021.
1. Twilio
Digital communication, which was already growing in prominence in pre-pandemic days, is now unavoidable. Twilio has had much success leveraging its consumer engagement platform to enable companies to build impactful communication services. The company's core offerings include communication application programming interfaces (APIs, which are building blocks used by software developers to easily embed services into customer applications), platform services, and application services (such as contact center platform Flex and authorization service Authy).
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Much of the pandemic-driven demand seen by Twilio in the telehealth, education, e-commerce, mass communication, and financial services segments will likely persist even beyond the pandemic.
Twilio has also reported a healthy dollar-based net expansion rate (DBNER) of 137% in the third quarter. Besides this robust metric, what truly differentiates Twilio from peers like Bandwidth and Vonage Holdings is the responsiveness of its management to the developer community using its platform. In addition to direct developer feedback, the company also pays attention to the new use cases developed on its platform. This helps Twilio identify pain points, and that information can either be used to improve existing product offerings or to launch new products.
Twilio's recent acquisition of leading customer data platform Segment signifies a move toward more data-driven solutions. Segment allows companies to build a holistic picture of their customers by combining data collected across various channels. . Subsequently, developers using Twilio's products and services can aim for timely, personalized, and impactful customer engagement across those channels.
All of these strategic initiatives are reflected in Twilio's excellent financial performance. In the third quarter, total revenue jumped by 52% year over year to $448 million. Twilio also surprised the market by reporting a small adjusted profit in the third quarter.
Twilio has guided for 30%-plus organic annual revenue growth for the next four years, long-term adjusted gross margin of more than 60%, and long-term adjusted operating margin above 20%. The company is committed to investing in its business and expects operational losses in 2021. However, this will be only short-term pain. Investors will reap the benefits of these investments in research and development, infrastructure, and commercialization for many more years to come.
Trading at a price-to-sales (P/S) ratio of higher than 35, Twilio definitely does not appear cheap. However, with a dominating position in an ever-expanding customer engagement market, investors can pay this price to enjoy solid returns in future years.
2. Fulgent Genetics
The COVID-19 vaccine news affected share prices of many COVID-19 testing stocks, but genetic-testing specialist Fulgent Genetics remained relatively unaffected. Fulgent's share price has grown by more than 360% in the past year, and there's still room for it to run in 2021. The company has guided for $300 million in revenue in fiscal 2020, a year-over-year rise of more than 800%. Much of this growth stems from the phenomenal success of its reverse transcription-polymerase chain reaction (RT-PCR) tests for COVID-19.
In the third quarter, Fulgent Genetics' revenue was up 883% year over year to $101.7 million, mainly driven by the success of its COVID-19 offerings. Demand should remain strong, as the spike in new COVID-19 cases in the U.S. and Europe, coupled with discovery of a 70% more contagious new COVID-19 strain in the United Kingdom, has dramatically increased demand for testing. There are also several administrative challenges involved in the rollout of COVID-19 vaccines in the U.S. According to the U.S. Centers for Disease Control and Prevention, as of Jan. 8, out of the 21.4 million vaccine doses distributed, only 5.9 million (or 28%) have been administered.
Besides COVID-19 offerings, Fulgent Genetics is also reporting an uptick in test volume for its core genetics business. The company can also leverage the brand awareness created by its COVID-19 tests to cross-sell its genetic offerings. In the third quarter, Fulgent Genetics filed 590,000 insurance claims, which is quite impressive for a company that mostly received cash payments. The company is working toward becoming an in-network diagnostic provider for major insurance companies, which will further boost test volumes.
Fulgent Genetics boasts a healthy balance sheet, with $104 million cash and zero debt at end of the third quarter. Against this backdrop, the company offers a very attractive risk-reward proposition for healthcare investors in 2021.
