In an increasingly digital world like the one accelerated by the pandemic, there is high pressure on companies to connect properly with their customers. This is where communications platform-as-a-service firms like Twilio, Inc. (TWLO) come in. Known for its messaging, phone, and application programming interface tools, Twilio recently posted impressive quarterly earnings, in addition to raising its guidance.
The software firm beat Wall Street consensus estimates on revenue by 9%, and reported a 40% increase in international sales quarter-over-quarter. After publishing its strong metrics, Ryan Koontz of Needham & Co. was confident that investor fears will be eased, and he foresees a strong outlook for the company.
Koontz rated the stock a Buy, and lowered his price target to $350 from $400. While this target comes as a slight downgrade, he stated it is “largely due to multiple compression among software peers.” Koontz’s new target currently suggests a possible 12-month upside of 73.26%.
Calling Twilio a “global leader in CPaaS,” the four-starred analyst offered easing quarterly comparisons and a favorable political environment as upside drivers. Moreover, the 2020 acquisition of customer data platform Segment has already generated $57 million in revenue over the last quarter, which Koontz believes will materialize into a “strategic and sticky, high-margin product.”
As far as profitability is concerned, the company is expected to lower its operating expenditures over the next year. The heavy investments Twilio made to expand its infrastructure and workforce had caused a momentary spike in spending, but that should change by 2023.
The CPaaS industry is an increasingly competitive space, but Koontz sees a strong established player in Twilio. He wrote that “despite global competition heating up and gross margins pressure on large messaging deals, we believe TWLO can leverage innovation and deep customer relationships to skirt price wars in large, mature deals.”
On TipRanks, TWLO has an analyst rating consensus of Strong Buy, based on 21 Buy ratings and one Hold rating. The average Twilio price target is $336.55, reflecting a potential 12-month upside of 47.17%. As of market open Thursday, TWLO was trading at $202.05 per share.
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