Trip Chowdhry, managing director at Global Equities Research, sees beyond-fixable problems with Twilio Inc TWLO’s fundamentals, and shareholders are positioned for loss.
“Investors have again made the same classical investment error — listening to the hot air of the investment bankers,” Chowdhry wrote in a Tuesday email.
What’s So Wrong?
This time, the problems are inherent to the company rather than its relative position among others. The first of the company’s two problems is that its API business is not, on its own, durable.
“They are getting squeezed between the application provider and infrastructure provider,” Chowdhry wrote.
The second problem is the competitive pricing model of direct competitors.
“TWLO has zero chance to survive against the ‘Scale-out’ pricing structure of AWS-Connect,” he said. “If history is any indication, AWS-Connect will resort to about two to three price cuts within 12 months, [and] TWLO has zero capacity to match the AWS-Connect Scale-out pricing. Pretty much TWLO is toast.”
The only sustainable solution is modification to the company’s pricing model. Chowdhry said Twilio needs to drop prices by at least 40 percent to secure deals above competitors.
Noting Twilio’s June IPO as the company’s peak, he predicted Cloudera’s impending IPO to herald a similar fall.
At last check, shares of Twilio were down 2.25 percent at $28.05.
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