With Projected 34% Organic Growth, Twilio Stock Is a Bargain Right Now

Twilio (TWLO 1.47%) enjoyed a strong quarter, beating analyst expectations. In this segment of "The Earnings Show" on Motley Fool Live, recorded on Feb. 11, Fool contributors Brian Withers and Jamie Louko discuss the encouraging growth by the communication company and what that means for investors.

Brian Withers: Let's start with Twilio first, TWLO. How did they do their quarter?

Jamie Louko: Let's do that. They did really, really good. They beat on both the top and bottom line. Their revenue, 54% total growth, which is really strong. It's not as strong as Twilio as seen in the past few quarters. They're traditionally up in the higher 50s, lower 60s percent, so it is slight growth, but I will get into why that was. But nonetheless, it beat analyst expectations.

Their net loss per share beat expectations. It was down from a year-ago quarter. But their customer growth was really strong. It was 16%. That doesn't seem too good on the surface, but we have to remember that Twilio is a messaging company that allows companies to better engage with their customers.

Chances are if you've done a ride-hailing service where your driver texted you, "Hey, I'm five minutes out," they're likely using Twilio to let the company communicate with the customer. One segment of the world that Twilio really benefits from is U.S. political elections where political campaigns used Twilio service for a year or two to really text and message and email and communicate with voters to get them to vote for them.

If you're not based in the U.S., Q3, Q4, 2020 was really big. That's when our presidential election was, and Twilio benefited a lot from that. That's why we're seeing slightly less growth year-over-year. Because we're facing some pretty tough comps and customers didn't grow as much because of that. But still, 16% growth off of a really high base, is really, really strong.

Twilio Segment, which is a recently acquired company that just this quarter. Finally, the year went around and so now Segment as a part of organic growth that grew 150% year-over-year. That's slightly messed up because Segment in 2020 was acquired in November, so it was about halfway through the comparable period, but still, it's growing 10% quarter-over-quarter from Q4, 2021 to Q3, 2021. So really strong there.

I also want to highlight their organic growth. Like I said, Twilio is a pretty acquisitive company. They like to acquire businesses. A big one being Segment, which just filtered through. They grew 34% year-over-year organically, which is really good. A lot of acquisitive businesses tend to fuel most of their revenue growth from buying companies, but that isn't the case with Twilio. They are expecting that not to be the case for the next three years, which is something that I love. They're expecting 30% or more organic growth for the next three-plus years, which means a good portion of their growth every single quarter is going to come from organic streams, from Twilio itself not it buying businesses, which is really important.

Another really good thing that they announced in their conference call, was that they are expecting to reach non-GAAP profitability by 2023 and be consistently non-GAAP profitable by 2023. They're looking to follow through on both of those going into 2022, their organic growth is going to be 33% in Q1. Their revenue growth, again, that's slightly weaker because they're up against some tough comparables but 46% growth year-over-year there.

All around a really strong quarter, they were up against some tough comparables, which is why the growth relatively seemed a little weak. But they crushed expectations and profitability is coming up, which is something that Twilio hasn't really done in a long time. The fact that they are going to be finally getting there is a really good sign for investors.

Withers: I really like their long-term forecast of 30% organic growth over the years. This is something that they've talked about for at least two quarters, maybe even three since their investor presentation. They went into at length in their conference call, why they feel so strongly about it. Their messaging services, their base messaging services, which are usually used to capture customers and land them, is a great way and that's continuing to thrive.

Then as customers realize all the things that Twilio can offer them continue to expand their business over time. Jamie, there's a question from the queue that I am going to throw you. Twilio has been beaten down the last two months. Is it a good time to add the Twilio positions now, or should we expect more of a drop coming this year with interest rates rising?

Louko: I definitely think it's a decent time to buy now. There is no magic all that says this is the best time to buy, that's never a thing. But comparatively, if we're looking at valuation, they've dropped pretty steeply. About a year ago, they were at about 33 times sales. Now, they're trading around 13, 14, 15.

Withers: That's like a bargain for a SaaS company. [laughs]

Louko: Yeah, 100%. If you're comparing to other tech and SaaS companies, that's a nice value. For me, I'm probably going to be adding personally in the next few months. I have to be quiet about it for two days before and two after and stuff like that, I got to go through my processes, but I'll probably be adding within the next month or two.

Withers: Yeah, this is a stock that's in my portfolio. The CEO, Jeff Lawson is the founder and continues to be thoroughly engaged with this business day-to-day, which I absolutely love.