For a stock that has nearly doubled in six months, Twilio stock still has a lot of upside left. Analysts are quite to point out that the stock’s surge in a short period of time warrants a consolidation. But investors could miss out on the next rally if they wait too long, especially because the stock is still down 75% from its post-COVID highs.
Twilio is a cloud-based communication platform that provides APIs to SMS, voice, video, and email applications for businesses. The company’s tailored solutions allow business customers to create customized communication solutions without the availability of substantial infrastructure. The flagship offering of the company is Twilio Flex, which is a programmable cloud-based contact center solution that helps businesses conduct their interactions with customers through multiple contact channels.
Others include its Messaging API which allows customers to send and receive SMS, MMS, and WhatsApp messages and enables them to talk to their customers in real-time; its Voice API supports voice calls throughout the world, while its Video API has functions of video chat in different applications. Twilio Verify is a service that authenticates users via SMS or voice, and Twilio IoT helps to connect devices over cellular networks.
The company operates on a pay-as-you-go pricing model, with messaging services and voice services representing the majority of total revenue. The end markets for Twilio encompass companies in diverse industries that need to enhance customer interactions across multiple channels. Some of the company’s top clients are Airbnb, Uber, Netflix, Hulu, American Red Cross, Lyft, Zendesk, Dell, and Dr on Demand.
Twilio’s bullish thesis is driven by its strong business and healthy balance sheet. On the business front, the company is well-positioned to benefit from the AI revolution. Its platform helps improve customer experience and with more and more companies now using AI to not only provide a good customer experience but also save resources, Twilio is becoming increasingly relevant. This is also confirmed by its Q3 2024 revenue surge, comfortably beating analyst estimates by more than $40 million. The revenue growth has bottomed out and almost hit double digits in the last quarter. The number of accounts didn’t grow as substantially, but they went up nonetheless.
Looking at the balance sheet, a $1.7 billion net cash and investments position is quite healthy. On top of this, the company is about to exhaust its buyback program. A new plan could be around the corner, likely to be announced at the year-end earnings call. It could also hit $1 billion in annual free cash flow during the next year, so the chances of another buyback look good. We believe the optimism on both the business and financial levels will continue to drive the stock higher in the coming months and 2025 could be the year when the stock takes off.
TWLO is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 52 hedge fund portfolios held TWLO at the end of the third quarter which was 54 in the previous quarter. While we acknowledge the potential of TWLO as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as TWLO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.