After trading on October 26, Eastern Time, cloud communications company Twilio announced its financial report for the third quarter of fiscal year 2020. After the earnings report was released, Twilio's after-market share price rose by about 4%. As of the publication of the US Stock Research Agency, Twilio's stock price fell 1.54% in after-hours trading. Twilio reported $300.62 per share, with a total market value of $44.5 billion.
Twilio's stock price fell after the market, and the US Stock Research Agency believes that this may be because the earnings estimates for the fourth quarter in the earnings report were lower than the previous analysts' expectations. Twilio previously expected a loss of 8 cents to 11 cents per share in the fourth quarter. Previously, analysts expected the company to earn $2 per share. Management expects revenue to be lower than analysts' forecasts, which also caused some investors' concerns.
Former Amazon cloud product manager Jeff Lawson and two friends founded Twilio in order to subvert the market structure of telecom operators' expensive prepaid contracts and complicated configuration requirements. Twilio's original intention is to serve small and medium-sized enterprises and individual developers in a true sense-through mature API (application programming interface), traditional communication into App. Jeff introduced Twilio as AWS for telecom in 2011 (the "Amazon Cloud" of the telecom industry).
Seizing the market vents, Twilio's development is also advancing by leaps and bounds. Since the beginning of the year, Twilio's stock price has risen by 211%, leading most stocks. However, it is also not to be ignored that Twilio, which has not yet been profitable, has also raised doubts about its business model and profitability by capital markets and investors. In particular, the increasingly crowded cloud communications track also creates a certain degree of development space for Twilio in the future. Squeeze. How should investors view the latest report card handed over by Twilio?
The slowdown in the number of customers drags down revenue growth, and a single revenue structure may be a hidden danger
One of the highlights of this quarter's earnings report is Twilio's revenue data. Financial data for this quarter showed that: the quarter’s revenue was US$448 million, compared with US$295 million in the same period last year, a year-on-year increase of 51.8%; compared with the previous quarter’s US$401 million, a month-on-month increase of 11.7%.
This quarter's revenue has achieved growth both year-on-year and quarter-on-quarter, and combined with the revenue data of the last few quarters, Twilio's revenue growth seems to have maintained a relatively rapid growth rate, but it cannot be ignored. Since 2020, Twilio's revenue growth seems to have slowed down.
The reason for its accelerated revenue growth may be the slowdown in the number of active customers. Financial report data shows: As of September 30, 2020, Twilio's number of active customers was 208,000, a year-on-year growth rate of 20.93% compared to 172,000 in the same period last year. At the end of the last quarter, the number of active customers was 200,000, which was only 4% from the previous quarter.
It can be seen that Twilio's customer growth has experienced a relatively large decline, and the growth rate of its active customers has slowed particularly in the second and third quarters of fiscal year 2020. In the field of cloud communications, Zendesk, a customer service system that has a high degree of overlap with Twilio's business, has also encountered "Waterloo" in revenue growth.
The reason behind it may not be difficult to understand. The current situation of home office in North America has caused more companies to purchase Twilio's cloud communication services. However, after experiencing strong corporate demand in the first and second quarters, the demand for cloud communications on the enterprise side also gradually declined in the third quarter. In addition, due to the high cost of cloud communications, some small and medium-sized enterprises are also cutting expenditures when cash flow is tight.
Similar to all technology companies with a high degree of unity of business, Twilio's main problem is also the single source of revenue. The financial report data for this quarter shows: Twilio's revenue from cloud communication services accounted for about 92% of total revenue, and this high proportion is also Twilio's recent "consistent style".
For Twilio, the excessively high single-business income dependence weakens its ability to resist risks, so that once its core business is impacted by internal/external factors, it will greatly affect Twilio's revenue data. The US Stock Research Agency believes that the dark cloud of health incidents will continue in the next one to two years, and this one to two years is a window of development for Twilio. If Twilio can seize the richness of its expansion business during this period, expand its revenue structure, and solve the problem of too single revenue sources, it will be of great benefit to Twilio's future development.
The amount of losses increased from the previous month, and profitability caused market concerns
In the process of rapid development of Twilio, the problem of losses also caused some investors in the capital market to worry about Twilio. Financial data for this quarter shows that while revenue is growing, net losses are also growing. The net loss for the quarter was US$112 million, a year-on-year increase of 19% compared with the loss of US$94 million in the same period of the previous year; compared with the loss of US$102 million in the previous quarter, an increase of 9.8% from the previous quarter.
According to the US Stock Research Agency, the reason for its loss is mainly because the cost of each income statement item is significantly higher. The marketing, product development and company infrastructure expenditures have led to greater losses, and the increase in cost expenditures is also An important reason for Twilio's failure to achieve profitability. From the outside, Twilio does not prioritize profit. The company has never reported positive net income.
The loss in the previous quarter can be explained by the high operating costs. From the perspective of this quarter, while operating costs have fallen year-on-year, the loss has increased year-on-year. Perhaps this also indicates to a certain extent that the market is profitable for Twilio. The ability concerns are not groundless.
In order to pursue rapid development, Twilio's investment costs will naturally increase. To a certain extent, it can be understood that it wants to gain more market share. Therefore, the value of profit will naturally be sacrificed in this regard. Zendesk, which is on the same track as Twilio, has also been in a state of loss. Zendesk's fiscal second quarter financial report data for 2020 shows that operating loss was US$31.49 million, a year-on-year decrease of 38.68%.
In the context of the narrowing of Zendesk's losses, it is still very important how Twilio can achieve profit as soon as possible and bring better earnings performance to investors.
Amazon enters the game, can Twilio handle the frontal attack of the giants?
It has to be said that Twilio, which has only been listed on Nasdaq for 4 years, has stood in a "outreach" industry. In terms of industry scale, Ericsson predicts that by the end of 2023, the total monthly mobile data traffic will be close to 110 EB (ten exabytes).
The continuous expansion of the overall market will enable enterprises and individuals to obtain relevant growth in the communications market. And under the influence of 5G technology, the growth of the total amount of communication may achieve a qualitative leap. With the rapid development of the industry, Twilio, facing corporate customers, is obviously promising.
However, the good prospects for the future development of this track have also attracted the attention of many companies. At present, there are still many competitors in the field of cloud communications. Uber Technologies, Shopify, Square, etc. have all set foot in this field. For Twilio, how does it go further in the future? Expanding competitiveness may be the key to gaining more market share.
However, the most notable and strongest opponent is Amazon. Interestingly, the former Amazon cloud product manager of Twilio founder Jeff Lawson, when he wanted to add communication functions to the product, he encountered expensive prepaid contracts and complicated configuration requirements from telecom operators. Later, he and two friends decided to subvert the old business model and closed market structure and founded a company called Twilio.
At present, with the development of Amazon AWS, the cloud communication business is gradually being included in the development track, and the cloud communication service under Amazon AWS has also competed with Twilio. The US Stock Research Agency believes that Amazon has the following two advantages over Twilio in the development of cloud communications business:
First, Twilio's two largest customers are Uber and WhatsApp. Both companies account for more than 10% of their revenue. At present, these two companies may build their own communication systems. Investors reacted violently to the imminent loss of a major customer who contributed more than 10% of its revenue, because this aspect fulfilled the long-standing worries about the company's major customer reliance and exacerbated the fear of losing more major customers in the future.
In the competition of large customers, Amazon occupies an advantageous position. More importantly, due to the large volume of Amazon AWS, the revenue of large enterprise customers does not account for a high proportion of its total revenue, which is in sharp contrast with Twilio.
Second, in addition to the cloud communication business of Amazon's AWS, its cloud computing also includes many other businesses. For customers, while using Amazon's cloud communication business services, they can also subscribe to other cloud service businesses to form a cloud business linkage effect. This advantage is not available in Twilio, which has a single business.
The US Stock Research Agency believes that Twilio has achieved an advantageous position in the competition with Amazon and needs to change the current dilemma of a single source of income as soon as possible and broaden the source of revenue. Maybe it can compete with Amazon.
Source of the article: US Stock Research Institute, please indicate the copyright for reprinting.