Twilio (TWLO -0.55%) was one of the hottest stocks on the market last year. Share prices for the cloud communications specialist more than tripled in 2020 as the novel coronavirus pandemic accelerated the shift toward cloud-based contact centers.
Based on its latest results and guidance, Twilio is looking like it could replicate that terrific performance in 2021. And with Twilio stock already up over 25% in less than two months this year, there's the possibility of a rerun of the 2020 rally.
The pandemic has supercharged Twilio's prospects
Twilio's results for the fourth quarter of 2020 blew past Wall Street's expectations. Revenue shot up 65% over the prior-year period to $548.1 million, way ahead of the company's guidance range of $450 million to $455 million. Twilio reported a non-GAAP net income of $0.04 per share. Analysts were expecting Twilio to deliver a loss of $0.08 per share on revenue of $454.8 million.
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Twilio's full-year revenue increased 55% to $1.76 billion, which handsomely crushed the company's original guidance of 30%-31% top-line growth issued in February 2020. What's more, Twilio sprang a major surprise by delivering non-GAAP earnings of $0.23 per share for 2020. It was originally anticipating a loss between $0.20 and $0.14 per share.
The COVID-19 outbreak played a critical role in this massive growth. The number of customers signing up for Twilio's cloud-based offerings shot up remarkably as shelter-in-place orders were enforced across the globe to contain the outbreak. Twilio's solutions allowed companies to remain in touch with their customers, even when offices were closed.
Customer service associates using Twilio's services simply needed computers and access to the internet to perform their tasks, eliminating the need for physical contact centers. This was a trend that was already in motion much before the pandemic struck -- but now, the shift toward virtual call centers in the cloud has received a big shot in the arm.
A third-party report points out that 59% of contact centers across the globe allowed some sort of work-from-home before the pandemic. The lockdowns sent that number to 74.1%, a number that isn't expected to drop much. According to Twilio's estimates, only 17% of the call center capacity was cloud-enabled before COVID-19. The company expects 50% of the 15 million contact center seats to shift to the cloud by 2025.
That's not surprising, as cloud-enabled contact centers reportedly result in massive cost savings compared to physical ones, which require investments in infrastructure, office space, and other overhead. Not surprisingly, Twilio is set for another year of tremendous growth in 2021 with the increasing adoption of cloud-based contact centers.
Terrific guidance sets the stage for more upside
Twilio has guided for revenue between $526 million and $536 million for the first quarter of 2021, the midpoint of which would translate into 45.5% year-over-year growth. Though it doesn't provide full-year guidance anymore, there are a few reasons why Twilio should be able to sustain this high pace of growth in the forthcoming quarters as well.
Twilio has been scoring new customers at an impressive pace thanks to the secular growth of the cloud-based contact center market. The company finished the previous quarter with 221,000 active customer accounts, up 23.4% from the year-ago period. The active customer count for the fourth quarter included customers from Segment, a customer data platform provider that Twilio acquired during the quarter.
More importantly, Twilio's customers are spending more money on the company's offerings. This is evident from its dollar-based net expansion rate of 139% last quarter, which excludes the impact of the Segment acquisition. This metric is higher when Twilio customers boost their usage of its offerings or buy additional solutions, and it's improved consistently over the past few quarters.
The chart shows consistent expansion in Twilio's dollar-based net expansion rate. Note: Q1 2020's 143% figure includes revenue from the SendGrid acquisition, which closed on Feb. 1, 2019. Excluding the contribution from SendGrid, the dollar-based net expansion rate would have been 135%. Image source: Twilio.
The Segment acquisition could help Twilio further improve this metric by driving additional spending from existing customers, who will now have the option to purchase another service. The customer data platform market that Segment operates in is expected to clock an annual growth rate of 24.5% through 2027, according to a third-party report, so it could see strong demand from existing Twilio customers -- and Twilio can cross-sell its products and solutions to Segment customers.
As such, Twilio could continue to exceed its own expectations in the coming quarters, as it has done in the past, and remain a hot growth stock with the potential for huge gains that could rival last year's run.
