My Thoughts on Twilio's Crash - Dip Buy Time?

11 בספט׳ 2022

Two years ago or so I was hanging with some traders around the New York Stock Exchange building in NYC. I was speaking to one trader who had been watching many SaaS & tech stocks breakout, climb higher, and higher, and while he appreciated the business models and articles he read, the move seemed to remind him of the Dotcom Bubble.

One company he spoke about was Twilio. He was not even sure what they did as a business. Most people I don't think even understand what companies like Twilio do. But he, he was insistent on it either being a short at some point or a stock to stay far away. The technicals did make sense. The euphoria for a company called "Twilio" just sounded like something in the Dotcom Bubble.

While I appreciate the sentiment, I did remember thinking: "Twilio does some $700+ million in revenue every 3 months" and also "The very text messages this trader receives whenever he logs into an app for two-factor auth is probably delivered by Twilio"

I did not buy any Twilio at the time, so I missed the run up, I also did not short any, so I missed the recent downmove. However, the conversation has stuck with me for a number of reasons. Let me explain:

1. Not everything is like the past. Yes, the age old "history doesn't repeat but it does rhyme" saying comes to mind. As does "this time is different" but the simple fact is that tech companies in the Dotcom bubble of 2000 were make $0 in revenue. Literally zero. Or maybe a few hundred thousand and trading at 1000x PS ratios or even no ratio at all because there was no revenue to begin with. No matter what someone says about Twilio, the company now generates nearly $1 billion in revenue every three months.

2. Reflecting on Twilio's recent crash, and this conversation that I have been thinking about, I must say that now seems like an interesting point in time whereby the old school traders, the ones who have been there and done that, seen the hype cycles, just may have outdone themselves with their level of pessimism. And so, while I don't have a position in Twilio, it is at the very top of my watchlist for a very fast rally.

3. Twilio's EV to revenue ratio, looking backward at the last 12 months, is 3.5. If you look forward to the next 12 months it is more like 2. And if you look forward 24 months, it is closer to one. Of course, that does imply a lot of growth, but you can look at Twilio's quarterly results to see the growth in this entire industry. I would also add that Twilio has 3x as much cash as debt on the balance sheet. $3 billion in cash to $1 billion in debt.

With that being said, I am not sure I fully understand the severe drop in Twilio. I see a lot of people talk about its inability to generate profit or tight margins. However, if a company is generating close to $1 billion in revenue every 3 months, I find it very unlikely that they are unable to turn on the switch, at any point, and start printing cash as needed.

Keep in mind that Twilio, like many companies in this space, deliver billions and billions of texts, emails, calls, and everything else every year. If they raise the price just by $0.005 yes, that's right, just a fraction of a penny, they would effectively almost double their entire revenue overnight. Twilio, for example, sends 130+ billion messages every year.

Anyways, that's it.

I've also marked some levels on the chart that I am looking at.

6 בנוב׳ 2022

הערה

OMG

Press the play button.

"With that being said, I am not sure I fully understand the severe drop in Twilio"

Wow, this got smashed.

Back to 2018 levels...