JPMorgan Initiates Twilio Neutral With 11x Forward EV/EBITDA Valuation

Although Twilio Inc TWLO has a superior growth and margin profile, its stock is already trading at a premium valuation, JPMorgan’s Mark R Murphy said in a report. He initiated coverage of the company with a Neutral rating and a price target of $39.

“Twilio is a disruptive cloud-based leader in Communications-Platform-as-a-Service (CPaaS),” analyst Mark Murphy wrote.

Riding The App Wave

Cloud computing is growing strongly, with developers increasingly opting for vendors like Amazon.com, Inc’s AMZN AWS to build software.

Murphy commented that Twilio had achieved for communications what AWS had achieved for compute and storage. He added that Twilio presented investors a “rare opportunity” to gain exposure to the only pure-play PaaS provider that was addressing a large segment of the Communications Software market; and that this market was expected to expand to $45.6B in 2017, according to IDC estimates.

Superior Growth And Margin Profile

Twilio enjoys the best growth and margin profile in the software space, with 88 percent y/y revenue growth in 2015, with -19 percent GAAP operating margin. “While Twilio’s gross margins are structurally constrained by carrier costs, we believe that the vendor’s relatively low S&M spend (28% of 2015 revenue) reflects its highly viral developer-centric self-service model,” the JPMorgan report stated.

The analyst pointed out, however, that the current valuation prices Twilio among “the most expensive Software names,” and already reflects the company’s best-in-class platform and ecosystem as well as superior growth and margin profile.

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