Twilio benefits from the digitization of everything and releases earnings that surpasses expectations

Peloton classes, Etsy purchases and Netflix binges may be temporary during COVID, but one thing might not be — the digitization of everything.

On Feb. 17, one of the companies fueling this digitization, Twilio released its fourth-quarter earnings report that surpassed expectations:

• $548m sales — up 65% from the year before — vs. $454.8m expected
• Surprise $0.04 earnings per share vs. a loss of $0.08 expected

Evolution of Twilio

Twilio was founded in 2009 to help companies add voice/text services into apps. i.e. Airlines use Twilio to send notifications about flight info/delays.

Over time, Twilio added additional communication tools like video, chatbots and email. Since its IPO in 2016, Twilio’s stock is up over 14x.

In 2019, Twilio’s growth had significantly slowed but COVID reaccelerated the demand for digital communication tools — giving Twilio a spike in sales growth and a nearly 4x increase in its stock price.

Like any opportunist, Twilio’s CEO, Jeff Lawson, took advantage of its elevated stock price by:

• Issuing new stock to investors to raise cash — which could provide Twilio with an extra $1.77b in cash
• Using its stock to acquire Segment, a platform that manages customer data, for $3.2b in Oct. 2020

A cross-selling machine

Twilio has aggressively expanded its products by launching new applications (i.e. video, chat) and acquiring businesses (i.e. Segment, SendGrid).

By growing a suite of complementary products, Twilio is…

• Able to cross-sell its many products — a business using Twilio’s text app is likely to use its other communication tools
• Expanding its market opportunity from an estimated $62b to $87b

And the strategy is working… In 2020, Twilio saw a dollar-based net expansion rate of 139%. Meaning — Twilio’s existing customers are spending 39% more than the previous year.

Twilio strategically chose acquisition targets that would complement the rest of its products. According to TechCrunch, its recent acquisition of Segment, could bring more customers to Twilio’s platform and strengthen its current existing products.

For investors… Keeping it 44-47%

Twilio forecasted a sales growth of 44-47% in the next quarter — higher than what analysts expected. Unlike other COVID beneficiaries, which may have seen a temporary sales increase, COVID may have triggered a more-permanent surge in demand for Twilio’s products.