Oppenheimer 2017 Top Picks: Twilio Shines With Possible Amazon Collaboration

Twilio Inc TWLO is one of Oppenheimer’s top picks for 2017, as the brokerage believes the potential collaboration with Amazon.com, Inc. AMZN's Amazon Web Services could offer a meaningful revenue opportunity and moderate concerns about competition from AWS.

Justification For Top Pick Designation

“While unclear whether AWS will simply use Twilio’s APIs more broadly or build a more comprehensive Twilio-powered platform, we believe an announcement could come soon involving multiple AWS solutions,” analyst Ittai Kidron wrote in a note.

Further, Twilio could see incremental revenues from products that are in the beta stages including Notify, programmable video, add-ons marketplace and programmable chat (IP messaging).

Kidron believes Twilio maintains stable gross margin despite a tough competition and revenue from new IP products could drive higher gross margin over long term (three to five years).

In addition, the analyst said the current consensus revenue estimates are overly conservative as he projects 2017 revenue growth of 38.1 percent versus the Street's 29.8 percent.

“With the CPaaS market in the early innings of adoption and with Twilio rolling out new products, we see compelling drivers of revenue upside over the next few years,” Kidron added.

Kidron reiterated his Outperform rating and price target of $50 on Twilio shares, which closed Wednesday’s trading at $27.94.