Twilio Investor Relations: A Tougher Job than Most

• The chart shows the performance of internet infrastructure company TWLO over the last three years
• Since the stock’s most recent peak on March 1, 2021, it has stalled, falling -17% in an up 12.5% tape^[1]
• Twilio has been a “dishonorable mention” in our pieces Junk Stocks, What Does Volume Mean, and one of our pieces about stock compensation being abused

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Is Twilio’s Stock Price Today a SELL?

Please click here to see why our ranking model dislikes the stock and some simple reasons Twilio, Inc, a company focused on developing and publishing internet infrastructure solutions may be a great sell candidate for due diligence.

Behavioral finance documents the unfortunate tendency of investors to chase performance. Formally known as “herding,” our team believes that Twilio may have been an outsized beneficiary of this conduct. In our view, many investors are creating narratives to justify a valuation we believe is simply untenable. At the same time, we consider it prudent not to fight the tape. The stalling of the stock in the last 6 months on an absolute return basis and the underperformance on a relative basis combined with the untenable valuations may point to an opportune time to SELL.

Is Twilio a Top Short Stock?

The chart below shows the same chart as the one above. The only difference? The chart below shows Twilio’s price performance relative to the S&P500 over the last three years. Despite the stall since February, it has outperformed significantly.

How much has the stock outperformed? The chart below shows that if the S&P500 just stayed flat, Twilio would have to fall 63% in a flat market to reach the broad index.

The data below is our Single Company Tear Sheet for Twilio. For all numbers, higher is better. The basics:

• Valuation Quintile 1: the stock is expensive on sales to EV, earnings to price, provides no dividend, and its FCF/EV is in the 14^th percentile as the stock generates a negative to flat FCF/EV
• Balance Sheet Quintile 4: Twilio’s only “redeeming” feature is its balance sheet score due to the high cash balances – a typical trait of many of today’s “story stocks” which have raised equity and burn cash
• Earnings Quality 1: while the stock has terrific scores on accruals and gross margin, overall, the business’ operating margins and ROA/ROEs are poor
• Market Quality 1: As seen in the charts above – Twilio is possibly overextending, coming under pressure, and looks like it may break lower – and it may have a long way to fall should valuations, profits, or quality start to matter

Read on to see some notes on the firm’s shareholder presentation and other Twilio Inc. resources.

Twilio, High Prices, Big Losses, Heady Acquisitions and “New” Metrics:

Twilio is a fascinating company. The market seems to have ascribed an enormous amount of value to the company’s future. Since 2018 they have grown revenue from $650 million to $2.25 billion via a blitz of acquisitions. Over that same short time, GAAP losses have exploded from -$122ml to -$731ml.

Others may disagree, but we hardly find this to be a compelling business model. More incredible to us is that this firm is valued at over $60 billion. In this day and age where “trillions” are tossed around with ease, one can be forgiven for losing sight of what $60 billion means.

$60 billion is 10% more than General Dynamics – a firm that generated over $4 billion in free cash flow in the trailing 12 months. $60 billion is just shy of Colgate-Palmolive’s valuation. Colgate has 8x the sales of Twilio and has generated sturdy and healthy profits for 20 straight years.

We believe this is the type of madness that underpins the mania in novel tech stocks today.

Summarily, the following make Twilio an interesting candidate for research in our view:

• Unproven management
• A business model that seems highly reliant on acquisitions
• A myopic focus on revenue growth despite ever-rising losses
• A valuation at levels that have a proven history of losing investors large amounts of money
• Dubious accounting terms, metrics, and a dearth of disclosure and guidance

Below we added some text in bright red to ALL the slides from their investor presentation. Any time you see “KCR: WORDS,” that is the KCR research team – NOT the company!! What we find remarkable is that the entire Twilio investor presentation is five slides. How many $60 billion companies do you know that put out five slides to explain their entire business? More remarkable still – the firm has made eight acquisitions YTD. It is only September!

Twilio Earnings Presentation Q2 2021:

Chart about Revenue Growth (no breakout of Organic) & Unproven “Growth Metric”

Two fairly arbitrary slides follow – top 10 customers and geographic mix:

Select Notes from the Company’s Prepared Remarks on the Earnings Call:

Normally this is where the KCR research team puts some select notes from a company’s earnings call. In this case…. there isn’t much of interest in our view. A full copy of their prepared remarks can be found here.

What strikes us is the abundance of buzz words and the dearth of numbers or comments about how they plan on making money. Even the CFO’s comments were fairly parsimonious on the details. He cites three separate metrics for YoY quarterly growth. None of them appear GAAP compliant.

Even more interesting – nowhere in the investor presentation or the prepared remarks is there a footnote guiding investors to a reconciliation of their non-GAAP metrics to GAAP metrics. Others much wiser than us may know something remarkable about this company’s future. But KCR’s views are formed by the intersection of current facts within the historical context.

In our minds, this company looks speculative in nature and potentially primed for a severe setback whenever more level-headed and rational methods of analysis prevail as they always have.