Twilio’s Freshman Year

Last Friday may have seemed like a normal day for most people, but for Twilio, it was a milestone. A year ago, the cloud telephony platform provider went public on the New York Stock Exchange. Shares in the company jumped 90 percent to close the first day at $28.53, but 12 months later, its stock stood at $29 — for all its progress to push further up-market and expand its offering, it seems Twilio has a bit of work on its hands to educate investors about its long-term bet.

In the first quarter of its public debut, Twilio seemed to beat all the odds. The company’s first shares began trading the day before the stock market collapsed, albeit temporarily, following Brexit’s passage, and still managed to do well. It went from a start of $28.53 to a high of $68.97 three months later before dropping to just barely over its IPO price. A big part of that fall has to do with updated guidance on its third quarter.

Since last September, Twilio’s stock has remained near its IPO price, even as the company pursues an up-market strategy. It has spent years courting developers from startups and traditional tech companies, including those that have now become popular services that we frequently use today, such as WhatsApp, Uber, and Lyft. But it needed to also diversify its portfolio and go after larger companies and show that its telephony-as-a-service feature applies to anyone who’s fed up with using services from incumbent communication providers.

The next phase of Twilio’s growth kicked off with the launch of an enterprise plan. For the most part, developers received the same service, but the benefit was to IT administrators who received greater security and regulatory controls. “Enterprises have to balance the desire to be more agile and innovative with the need for more stringent security and controls,” said Jeff Lawson, Twilio’s chief executive in a statement at the time. “With the Twilio Enterprise Plan, enterprises are free to innovate at the speed of startups while ensuring compliance with their more rigorous policies.”

Just like with Slack and other modern technology, IT departments can be increasingly skeptical about rolling out new services company-wide, largely due to security concerns — understandable in this day of age. Even as technology is gaining adoption through a bottom-up approach, it can be difficult, so Twilio’s Enterprise Plan was an effort to show that the company wanted to eliminate frustration and friction within organizations to use its platform.

But an enterprise plan can only do so much — you need someone to help steer the ship to the next port and Twilio enlisted the help of George Hu to help navigate the waters. The former Salesforce chief operating officer was hired in March to replace Roy Ng who departed for Mapbox. Under his watch, Hu helped to turn Salesforce into a major player in the cloud platform industry with more than $5 billion in revenue during his tenure.

It’s feasible that Twilio wants to become similarly iconic and widely used as Salesforce but around the communication space — so Twilio will be synonymous with anything relating to call, text, WebRTC, or messaging, just like Salesforce is around customer data and enterprise cloud.

From a product standpoint, it doesn’t appear that Twilio hasn’t had any missteps. It’s continuing to add new features such as programmable fax (yes, this is a legitimate thing) and offers practically all the capabilities and APIs a developer might need for an app or program.

So what’s humbling Twilio’s growth now? It’s how investors perceive the company — shareholders are punishing the stock even as some analysts have upgraded their opinions to buy or outperform. It’s possible that the company hasn’t educated the stock market about what it can do and its long-term vision. But to be fair, some are probably too scared about the fact that two of its biggest customers are WhatsApp and Uber. Both are in prime positions to reduce their usage for alternatives, and the latter has already done so — Twilio warned investors last quarter and that resulted in a significant dip in the stock price. WhatsApp and Uber each make up double-digit percentages of Twilio’s revenue so any drop can cause investors to retreat.

Twilio sought to reassure shareholders saying that Uber’s reduction in usage was an outlier compared to its overall customer base. “It’s the nature of the company and size of the spend for Uber to make this kind of decision,” Lawson said, while denying that this was part of a growing trend investors should be worried about.

However, not everyone buys into that. Almost immediately after covering Twilio’s Q1 2017 earnings, MessageBird CEO Robert Vis sent me an email saying: “We are the vendor Uber moved business to and Jeff is telling a fairytale story that this is just Uber. The reality is that Twilio is way too expensive and customers are moving to us left and right because we are faster, cheaper and more reliable…”

Shots fired.

Is Twilio in any danger? It doesn’t seem so. The company continues to chug forward and launch new products and features that developers are interested in. More than 40,000 accounts have been created, a 42 percent annual increase, and is seeing revenue grow. Based on its first year, it seems Twilio had a pretty good year from a technological standpoint. But shareholders are hoping that their investment is seeing more returns and that involves an upward movement in the stock price.

In the next year, we may see more activity around getting Twilio accepted within the enterprise and demonstrating how easy it is to implement communication tools into an app without being a certified engineer — it has already started doing so with its Functions feature. What other things does the company have in its product roadmap will have to wait until later.

Looking at the company’s financial performance, it’s easy to get caught up with why some investors may be gun-shy about putting their faith in Twilio to return their investment. After all, in the end, it’s about your money. Are shareholders caring about the mission of the company or are they just in it for a quick buck? More accounts are being added each quarter but it’s unknown the size or stature of these customers.

Losses continue to rack up each quarter too, but that’s alongside an increase in revenue. It’s feasible that Twilio is investing more in research and development. The growing net loss could also cause some consternation among investors. Who knows? But there’s a bit of work left for Twilio to do and it’ll be interesting to see how its sophomore year of being public goes.