Twilio Inc TWLO has a “resilient” core base business and there’s “increasing probability” of the company reaching profitability by year-end, Pacific Crest’s Brent Bracelin said in a report. He upgraded the rating on Twilio from Sector Weight to Overweight, while establishing a price target of $36.
“Base revenue, which excludes WhatsApp and a handful of other variable customer accounts, remains resilient,” Bracelin commented. The company had generated 70 percent year-over-year growth in base revenue for 11 consecutive quarters. This base segment now contributed 90 percent of total revenue and had grown to an annualized run-rate of $256 million, up significantly from $41 million in 2013.
“Much of this steady and consistently high growth rate can be attributed to a usage-based model, where revenue is aligned with customer usage across an increasing base of ~34,000 customers,” Bracelin wrote. He added that the base growth estimate had been raised from 37 percent to 43 percent, “with increasing confidence Twilio can reach profitability by year-end.”
3 Main Reasons For Upgrade
The analyst highlighted three reasons for the upgrade:
- An “increasingly favorable” risk/reward following the 55 percent sell-off in shares in Q4 2016.
- Multiple upside levers to consensus estimates of 30 percent growth in 2017.
- A higher probability of the company reaching profitability by the end of the year.
At last check, shares of Twilio were up 1.93 percent on the day at $28.04. Year-to-date, shares are down roughly 2.6 percent, and since its IPO, shares are down 2.26 percent.
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