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Twilio Closes the SendGrid Acquisition

Posted on Wednesday, Mar 13th 2019

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Cloud computing software vendor Twilio (NYSE:TWLO) has had a phenomenal stock rally this year. In the last twelve months, the communications platform provider has seen its stock climb an impressive 250%. But analysts are beginning to wonder if the stock has reached its peak.

Twilio’s Financials

For its fourth quarter, Twilio’s revenues grew 77% to $204.3 million, significantly ahead of the market’s forecast of $182 million. Adjusted EPS of $0.04 was in line with market expectations.

Among key metrics, its base revenues jumped 77% to $186.2 million. Its top 10 active customer accounts contributed to 20% of total revenues, compared with 17% a year ago. It registered a 31% growth in active customer accounts and ended the quarter with 64,286 active customers. During the fourth quarter, it added more than 3,100 active customers to its portfolio.

Twilio ended the year with revenues growing 63% over the year to $650.1 million.

For the current quarter, Twilio forecast revenues of $222-$225 million with an EPS of $0.00-$0.01. The market was looking for revenues of $192 million for the quarter with an EPS of $0.02. For the year, Twilio forecast revenues of $1.065-$1.077 billion and an EPS of $0.08-$0.11. The Street had forecast revenues of $984 million with an EPS of $0.16.

Twilio’s SendGrid Acquisition

Last quarter, Twilio announced the acquisition of email specialist SendGrid for $3 billion. This is Twilio’s largest acquisition so far. Founded in 2009, Denver, Colorado-based SendGrid is known for its cloud-based email service that helps solve the challenges of delivering emails for growing companies. SendGrid operates a similar business as Twilio, but for emails. Twilio has built communication-as-a-service APIs and other tools that help businesses integrate phone, messaging services, videos, and SMS with customer services into one system. With the acquisition of SendGrid, Twilio’s platform will now also include an email delivery service. Through the acquisition, the combined entity will manage more than 140,000 active customers and cover over 600 billion interactions annually. The acquisition will bring Twilio closer to its vision of becoming the go-to platform for all external communications for a business.

This wasn’t the first time that Twilio had courted SendGrid. It was trying to acquire SendGrid in 2017, but SendGrid had chosen the IPO route over an acquisition. SendGrid had raised $80 million in 8 funding rounds prior to listing in 2017. It had raised $131 million through its IPO and was valued at $652 million. Prior to the acquisition, SendGrid had announced its quarterly revenues of $37.2 million with a net loss of $2.4 million. Twilio expects SendGrid to add $168-$170 million in revenues in the current year.

Twilio’s Developer Platform

The acquisition will also help strengthen Twilio’s developer community. Together, the two companies will now support more than 4 million registered developer accounts on their platforms.

Twilio continues to see strong adoption of its tools by the developer community. Customers like Ecolab are using its Programmable Messaging product to send alerts and notifications to the field service team when customer requests come through with their contact center. STANLEY Infrastructure has built its Programmable Video product directly into their mobile app, allowing remote technicians to show issues with equipment, diagnose problems, and identify broken parts. ezCater, an online marketplace, is using Flex to scale its office catering business that allows customers to place orders from more than 60,000 restaurants across the United States. GoDaddy is using Twilio to power SmartLine, an app that it has built that allows customers to easily add a second phone number to their cellphones, while keeping their business and personal identity separate.

With SendGrid’s acquisition, Twilio has its hands full right now and will not be looking to add more companies to its portfolio soon.  I have been concerned with Twilio’s revenue concentration and lack of product line diversification. Twilio has traditionally been dependent on a few customers like Uber and WhatsApp for its revenues. In 2016, Uber accounted for 17% of its total revenues. It has been working on diversifying its client base. For the recent quarter, Twilio reported a revenue growth of 79% excluding Uber. The SendGrid acquisition is an excellent move to address those concerns.

The market is pleased with Twilio. Its stock is trading at $122.09 with a market capitalization of $15 billion. It has been climbing from the low of $35.89 that it had fallen to in April last year. The stock had climbed to a 52-week high of $124.87 earlier last month. That is a significant climb for a stock that had listed in 2016 at $15 apiece.

Photo Credit: Web Summit/Flickr.com

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