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Twilio Inc A TWLO

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Morningstar’s Analysis

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Narrow-Moat Twilio Owns the Rails for the Next Generation of B2C Communication; Raising FVE to $302

Nupur Balain Equity Analyst

Analyst Note

| Nupur Balain |

Narrow-moat Twilio reported strong third quarter results, supporting our thesis that Twilio is well-poised for robust future growth, reflected by a rapidly expanding customer base (growing 21% year on year) and an increasing number of relevant use cases for its software. The coronavirus pandemic has sped up digital adoption; as customer engagement has largely moved online, it has facilitated the need for large-scale, rapid communications afforded by Twilio's platform. We continue to assign Twilio a narrow moat rating, with the company's admirable results supported by strengthening switching costs as it rolls out more use-case-specific products and targets enterprise clients. Our narrow moat rating is also substantiated by 97% gross retention and 120%-plus dollar based net expansion rates, indicating businesses' growing reliance on Twilio's platform. With excellent retention metrics, expansion of solutions API offerings, and increased focus on enterprise penetration, we believe Twilio has a large growth runway ahead. As a result, we are increasing our fair value estimate to $302 from $153. Shares were down modestly after hours, likely on the back of lower-than-expected management guidance for the fourth quarter, which does not incorporate the impending Segment acquisition. We currently view shares as fairly valued.

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Company Profile

Business Description

Twilio is a communications platform as a service company that allows software developers to integrate messaging and communications functionality into existing or new applications via application programming interfaces, or APIs, and software development kits, or SDKs. The firm’s Programmable Communications Cloud addresses several use cases, including Programmable Voice to make and receive phone calls, Programmable Messaging for SMS and MMS delivery, and Programmable Video that allows developers to embed video functionality in mobile and web applications.

101 Spear Street, First Floor
San Francisco, CA, 94105
T +1 415 390-2337
Sector Communication Services
Industry Internet Content & Information
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Speculative Growth
Employees 3,664