1. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 58
Twilio Inc. (NYSE:TWLO) is one of the notable under-the-radar stocks to buy according to hedge funds. The Cloud communications technology company is used by thousands of companies and developers all over the world to build communication pipelines for customer support, chatbots, text messages and other forms of communication. Twilio’s Cloud communication service is used by major companies including Lyft, the American Red Cross, Dell and Airbnb.
Twilio Inc. (NYSE:TWLO) is currently under pressure amid macroeconomic headwinds and the launch of ChatGPT, which many believe would give a tough competition to Twilio. However, many analysts believe that Twilio is operating in a different domain than ChatGPT and the company has an established developer and customer base.
A total of 58 hedge funds tracked by Insider Monkey had stakes in Twilio Inc. (NYSE:TWLO) as of the end of the September quarter. The total value of these stakes was $2.1 billion. Cathie Wood’s ARK is the biggest stakeholder of the company, with a $472 million stake.
Here is what RiverPark Funds specifically said about Twilio Inc. (NYSE:TWLO) in its Q2 2022 investor letter:
“Twilio Inc. (NYSE:TWLO) offers a full suite of cloud-based communications software, services and tools that allows companies in a wide range of businesses to build omni-channel communications capabilities (video, chat, voice, SMS, fax and email) directly into their customer facing applications without needing to build back-end infrastructure and interfaces. The company also provides software tools that allow its users to gather and categorize customer data (its Segments offering) and to create next generation call centers (Flex) to utilize this data in customer interactions. Twilio is the leader in this fast growing $80 billion Communications-Platform-as-a-Service (or CPaaS) market, having grown its customer base 5x in the past five years to 268,000 customers and to a $3.5 billion run rate revenue for 1Q22. The company’s net revenue retention rate has exceeded 125% every year since its 2016 IPO and its customer churn remains less than 4% (for customers with > $30,000 revenue), evidence of the loyalty of Twilio’s customers to its platform (and a high switching cost) as well as the company’s increasing number of offerings. The company’s revenue is generated from both recurring revenue from subscription fees as well as volume-based charges for usage.
TWLO expects to maintain a +30% annual organic revenue growth rate through at least 2024, with long-term gross margin expansion from 56% to 60%-65%, and EBITDA margins approaching 35% as revenue scales. As of 1Q22, TWLO had $4.2 billion net cash, and should turn FCF positive this year. Over the next several years, we expect the company to grow its excess cash significantly as the company operates an asset light business model with low capital needs of just over 1% of current revenue.
We forecast 30% annual revenue growth through 2027, with EBITDA margins approaching the company’s long-term model guidance of 27% to generate $11.49 of EPS. At its current stock price, TWLO trades at about 5x this 2027 EPS projection (and trades at only 3x our 2030 EPS estimate). We project that the company will generate nearly 65% of its current enterprise value in excess free cash over the next five years and all of its current enterprise value in excess cash by the end of the decade…” (Click Here to read the full text)
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