Twilio ($TWLO): The Pendulum Swings Both Ways
Hi all! I published my first Substack post this morning, a deep dive into Twilio.

"I believe Twilio is a high-quality business that offers a large short-term dislocation and a long-term opportunity at current prices. While the market was only concerned with revenue growth in 2020-2021 and GAAP profits/dilution now, what ultimately drives long-run stock prices is free cash flow per share, of which the company is poised to produce in spades for many years."

Here are some highlights:
  • 122% dollar-based net expansion
  • Mission critical and very sticky
  • Category-defining product and dominant market position
  • Nearly a $2 billion in gross profit run rate
  • Will begin to produce FCF in Q1 (my est.) with massive operating leverage ahead

Despite the stock price being in an extended tailspin, this is a business that is continuing to get stronger and is likely to produce exceptional returns for shareholders. I am long $TWLO and added to my position on today's weakness.

Please give this a read and consider subscribing if you like it!

Benjamin Tan's avatar
Great write-up! Did not realize that Lawson's super voting rights were expiring next year. Agree that a buyout would cap returns (and a real shame to long term shareholders). Been long since 2019 and following the company closely. I went to their Signal conference back in 2019! Have subscribed to your Substack - cheers!
Rahul Setty's avatar
@consumeowntech Glad you liked it, thank you! The opportunity here is just incredible, imo. I really hope it stays public too!
Rihard Jarc's avatar
Wonder if $TWLO will reign in those costs now given how much they have grown, that Lawson super voting rights are expiring and that macro environment favores layoffs, specially in tech.
Rahul Setty's avatar
@rihardjarc I think Lawson would view the market opportunity ahead as too large to slow down investment. On a podcast with Jason Calacanis from several years ago, Lawson illustrated the hardware stack shift from on-prem to cloud and believes the same could be done for communications hardware like routers, modems, etc. He is thinking 10 steps ahead. But I do think he sees activists coming and committing to positive FCF in ‘23 (and the 11% layoff) is an attempt to stave them off.
Rihard Jarc's avatar
@rahulsetty good point. Although the stock has really been hit hard wonder what the priorities are now.
Rahul Setty's avatar
@rihardjarc to be honest, the margin expansion plan they laid out (100-300 bps/yr for 3-5 yes) is very slow compared to what this biz is capable of. if they just buy back a ton of stock they can have their cake and eat it too

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