Is It Too Late to Buy Twilio Stock?

Twilio (TWLO -1.49%) was one of the more notable decliners in the 2021-22 bear market. After reaching a high of $457 per share two years ago, it fell as low as $41 per share in late 2022, a drop of 91%.

Since that time, Twilio has bounced back, surging above the $60 level. That may leave investors questioning whether that move is the beginning of a recovery or a bear market rally for the SaaS stock. Let's take a closer look.

The state of Twilio

Twilio is the leading provider in the communications platform-as-a-service (CPaaS) space. Its CPaaS services make emerging businesses such as Uber, DoorDash, and Airbnb possible by facilitating text, voice, and video communications.

The company built much of its competitive moat on its first-mover advantage in this space, and the high switching costs have helped it hold on to customers. And to further blunt potential competitive threats, it has added services such as Twilio Flex, a contact center that reduces development costs for enterprises. Additionally, its Twilio Frontline software allows for data sharing between employees and customers.

However, investors have turned on the stock amid ongoing losses. Not only has the company not posted a profitable year since its 2016 IPO, but it also has experienced increasing losses despite rapid revenue growth.

To that end, Twilio has focused on profitability in recent months. It laid off 11% of its workforce in September. It has also prioritized platform improvements, finding more opportunities to derive profit from messaging, more rapid segment adoption, and scaling the customer base for Twilio Flex.

Twilio financials

Investors will have to wait for the Feb. 15 earnings report to see if these results have borne fruit. Still, the rapid revenue growth continues. In the first nine months of 2022, its revenue of $2.8 billion was 40% higher versus the same period in 2021. The company credited higher international revenue, more spending by current customers, and efforts to improve software sales as reasons for that growth.

Nonetheless, with the cost of revenue and operating expenses also growing rapidly, losses during the first three quarters of 2022 came in at just over $1 billion, up from $659 million during the same time frame in 2021.

However, investors seem more optimistic about the stock, given a 45% increase in the price since October. Also, prospective stockholders may also like the current price-to-sales (P/S) ratio that is just above 3. This is a more attractive valuation than two years ago, when the P/S ratio briefly exceeded 35. If the company shows it is serious about profitability, it could bode well for an even more dramatic stock price recovery.