Twilio (TWLO) acheived a few accomplishments in the first half of December 2019 that are worth noting. I first recommended Twilio stock for long term investment in November. These accomplishments further emphasize the market-leading position that Twilio enjoys and reinforces the opportunity going into 2020.
First, Twilio was recognized as the leader in the IDC MarketScape Worldwide Cloud Communications Platform-as-a-Service 2019 Vendor Assessment. This assessment included competitors in the CPaaS space such as Bandwidth, Vonage, Messagebird and Plivo.
In terms of the strengths highlighted in the summary for Twilio, IDC reinforces the values that I consider critical in evaluating a successful software stack company. These include rapid product development, a culture of innovation and strong affinity with developers and the industry at large.
Twilio has developed an envious brand recognition as the premier CPaaS icon. Twilio’s strength is its perennial vision and the rapid onboarding of new communications capabilities and tools to its platform. It has repeatedly preempted the market with constant innovation incorporating new features, while perfecting the ability to develop and deliver simplified developer experiences. The company has also cultivated a deep core of developers and channel partners.
An additional subtle footnote in this year’s report from IDC revolved around their definition of a cloud communications platform and specifically the services that are expected to be delivered. IDC states that support for voice and SMS capabilities are simply “table stakes” at this point. A comprehensive CPaaS solution should include support for video, email, authentication and omni-channel communications. These additional capabilities have been part of the Twilio platform for some time, with email added at scale through the acquisition of SendGrid in 2018. The expectation for robust feature coverage in all these areas will put significant pressure on competitors who are coming from the traditional phone network industry (Vonage, Bandwidth) and smaller players (Plivo). For example, to include an email offering, it’s trivial to stand up an outbound mail server to send email on behalf of customers. However, it’s an entirely more complex exercise to do this reliably at high scale across all ESPs (Hotmail, Gmail, Outlook, Comcast, AOL, etc.), accounting for the configuration and relationship nuances to guarantee high delivery rates to user inbox. SendGrid was already the leader in this space before the acquisition. Creating these capabilities from scratch for a voice company would be a heavy lift.
Further, IDC expects all capabilities to be accessible through open, programmable APIs with developer-friendly documentation and code examples. Beyond programatic APIs, they also expect low-code “drag-and-drop” interfaces for non-programmers to set up communication flow logic. Twilio has always exposed all functionality through easy to integrate APIs and the Studio product facilitates configuration through a UI-driven interface.
Finally, IDC expects communications to be supported globally. Some of Twilio’s competitors have a distinct domestic U.S. bias. Twilio offers coverage in over 100 countries through its Super Network.
As another December highlight, Twilio recently distributed a product announcement that Twilio SendGrid had processed a record number of emails over the Black Friday / Cyber Monday period. They reported that on “Black Friday 2019 we processed 4.1 billion emails and this Cyber Monday we processed 4.2 billion emails (46% more than 2018)”. The interesting stat to me was the year over year growth of 46%. While we would expect growth of 10-15% based on the year/year increase in overall e-commerce, a 46% growth rate is surprising. This would indicate some level of increased adoption amongst customers. Since SendGrid charges fees based on send rates and annual revenue growth has been in the 30% range, this data point is encouraging.
Finally, on December 9th, Twilio received a favorable analyst recommendation. Bank of America analyst Nikolay Beliov reiterated his Buy rating and $138 price target. He also designated Twilio as a “top pick” for 2020. This target represents a 40% increase in share price at the time of the recommendation.
I agree with Nikolay. Twilio should perform well next year. The CPaaS total addressable market has been estimated as growing to about $50B in the next 5 years, as an annualized rate of 40-50%. Assuming Twilio maintains its leadership position in this market, then we would expect its share of revenue and stock price to increase substantially.
