Twilio's Excellent Results May Take The Stock Up By 25% Over 6-12 Months

Analysts Richard Davis and David Hynes said the print and guidance was a good first step, although they remained cautious, as it was isolated.

Q2 Print

• Base Revenue: Up 65 percent without Uber and 55 percent, as reported.
• Revenues: $95.9 million, up 49 percent and $8.9 million ahead of estimates.
• Net new active customers added: Over 2,700, double the firm's expectations.
• Customer Count: 43,431, up 41 percent and exceeding the firm's forecast of 42,000.
• Net dollar retention: a healthy 131 percent.
• ARPU: Up 17 percent year over year on excluding the Uber impact, Up 10 percent as reported.

The firm noted that the company raised the midpoint of base and total revenue by $8 million and $14 million, respectively. The company also raised its non-operating income guidance by $5.5 million at the midpoint.

Consequently, Canaccord Genuity increased its revenues and operating income estimates for Twilio to the high-end of their respective ranges.

"Our forecast assumes that Uber declines ~50% year-over-year next quarter and represents ~5% of base revenue on a run-rate basis in the December Q4 2017 quarter," the firm added.

Operating In Good Growth Market

Based on their independent work on the CPassS sector, the analysts said there are only a handful of well-constructed and well-run firms in the space that will capture a disproportionate share of the market.

Canaccord Genuity sees half the vendors growth as coming from completely new cases rather than from the competitive and contentious "rip and replace market." The firm pointed to the rise in popularity of mobile apps for a range of uses, which underlines the enormity of this "everything gets connected theme."

The firm feels such a market would produce good growth, especially for well-positioned firms.

"As such, we push back on the bearish narrative that pricing is, or soon will cascade down — at least until the leaders penetrate the comparatively easy part of a TAM that we have estimated in past reports to be at least several billion dollars," the firm said.

Longer-Term Question

The firm indicated that the longer-term question confronting Twilio is to see how the firm inches up its revenue per customer from the long-tail, "citizen developer" to much larger size enterprise size revenue streams. The firm believes Twilio can move up market in its segment, just as firms like Atlassian Corporation PLC TEAM, Slack, Unity, GitHub and Dropbox has successfully moved up the market in their respective industries.

"We believe Twilio is a well-managed, wellpositioned firm whose stock price over-reacted on the downside and is now getting back to a more reasonable level," the firm said.

Accordingly, the firm believes the stock can work its way higher over the next 6–12 months at least, and well beyond.

As such, the firm maintains its Buy rating on the shares of Twilio and raised its price target for the shares from $33 to $38.

At the time of writing, the shares of Twilio were surging up 7.60 percent to $32.85.