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Will Twilio Get Acquired by Salesforce?

Posted on Friday, May 11th 2018

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Cloud computing software vendor Twilio (NYSE:TWLO) recently reported its first quarter financial results that shattered all expectations. The market is very pleased with Twilio, with some categorizing it as a “star in digitization”.

Twilio’s Financials

For the quarter, Twilio’s revenues grew 48% to $129.1 million, ahead of the market’s forecast of $116 million. It reported a net loss of $23,729 in the quarter, or $0.25 per share, compared with a net loss of $14,227, or $0.16 a share reported a year ago. Adjusted EPS was flat over the year at $0.04 a share. The Street was looking for an adjusted loss of $0.07 per share for the quarter.

The strong revenue growth is impressive considering that since the first quarter of 2017, Uber has been transitioning its business away from Twilio. Till 2016, Uber used Twilio’s platforms for most of its geographical operations (geos). However, since Q1 2017, it decided to migrate communications for some of its geos in-house. The migration has resulted in Uber’s revenue share for Twilio dropping from 12% a year ago to 4% in this quarter. Despite the reduction, Twilio ended the quarter with 53,985 active customer accounts compared with 40,696 accounts last year.

For the current quarter, Twilio forecast revenues of $129-$131 million, and an adjusted per-share loss of $0.06-$0.05 per share. It expects to end the year with revenues of $538-$544 million, and an adjusted per-share loss of $0.10-$0.07. Twilio had reported revenue of $399 million last year. The market was looking for revenues of $126 million with an adjusted loss of $0.06 per share for the quarter, and revenues of $512 million with an adjusted loss of $0.12 per share for the year.

Twilio’s Improving Product Line

Recently, Twilio announced the launch of Twilio Flex, the first cloud contact center application platform that’s programmable at every layer of the stack. Twilio Flex has been built on its existing Super Network and Programmable Communications Cloud and will feature a programmable Flex user interface. The interface will allow developers to build fully customizable agent and supervisor desktops and allow Twilio’s partner marketplace to incorporate new functions, applications, and data sources. Customers will benefit from being able to customize the solution at every layer. For now, Flex has been launched as a pilot program and is being made available to a select few customers with early access to the full scope of functionality. Twilio is targeting very large contact centers for this product.

During the quarter, Twilio also expanded its integration with Google’s Rich Communication Service (RCS). RCS Business Messaging will allow businesses to build more engaging and richer messaging experiences while leveraging the reach of SMS. Companies will be able to utilize RCS to send branded messages and share content that allows for scrolling through product images, suggest replies and actions, and gain insight into how messages are performing with accurate read receipts and click-through data.

Questions for Twilio’s Board

Earlier this year, Salesforce.com revealed a nearly 1% holding in Twilio. The news has helped push Twilio’s stock upwards as some speculate that Salesforce may be looking at acquiring Twilio. At the heels of the MuleSoft acquisition, in the next 18-24 months, indeed, Twilio could become the next big acquisition for Salesforce. On the other, it is a great strategic acquisition for several other players like Microsoft, SAP and Oracle as well. I would like to know how the Twilio Board views options such as these.

For now, Twilio’s organic growth rate is excellent. At some point, however, there may be acquisitions the company could consider as well. What categories is Twilio looking to acquire in?

The market is very pleased with Twilio’s performance. Its stock is trading at 52-week high levels of $52.41 with a market capitalization of $5.1 billion. It had fallen to a 52-week low of $22.90 in December last year. Twilio went public in 2016 when it raised $150 million by pricing its stock at $15 apiece.

Photo Credit: Web Summit/Flickr.com

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