Can Twilio Stock Keep Going After Last Week's 17% Pop?

By Rick

Image source: Twilio.

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It was a good week forTwilio (NYSE: TWLO) shareholders. The cloud communications specialist saw its stock move 16.9% higher. There wasn't any particularly notable news out on Twilio. CEO Jeff Lawson did take the stage on Tuesday during Recode'sCode Enterpriseconference, but that in of itself wasn't a game changer.

There weren't any new revelations during the conference's 30-minute interview with Lawson. It did help familiarize the tech community with Twilio, but it's not as if the fast-growing company needs an introduction. More than a million developers are on Twilio, and several of the hottest apps including Uber, Airbnb, and WhatsApp Messenger lean on Twilio's platform to run real-time communications within software applications.

If anything, the stock's rise last week can be best explained away as a logical bounce for a stock that was getting slammed in the previous weeks. Twilio stock had shed more than half of its value since peaking north of $70 in late August, surrendering 56% of its peak value heading into last week. Twilio wasn't going to be on a downward spiral forever, especially as its growth prospects keep shining.

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A wild six months

Twilio went public at $15 six months ago, and it was a rock star out of the gate. It nearly doubled in its first day of trading, only to more than double again by summer's end. With big names attached to its communications platform and heady growth -- revenue growth of 78% in 2014 had accelerated to 88% in 2015 -- it was a market darling at a time when the well of tech debutantes seemed to be running dry.

The stock went on to have a brutal October with Twilio shares plunging 47% last month. Analyst concerns about valuation began to keep the stock in check, but there was also apoorly received secondary offeringweighing on the stock. Twilio announced that it would have a stock placement of 7 million shares. It wasn't going to be ridiculously dilutive. Nearly 90% of the shares were being offered by selling stockholders, not Twilio itself. However, that also rattled investors into wondering why so many pre-IPO investors and insiders wanted out with the stock already trading well below its September high.

Twilio's high top-line growth and its lack of profitability -- it's been posting deficits for years -- make for a potent volatility cocktail. Wall Street has taken a conservative stance, even after benefiting from both the May IPO and the secondary five months later. When Oppenheimer initiated coverage of Twilio earlier this month with a bullish Outperform rating its $50 price target was at least $10 higher than where the other major firms were perched.

Last week's move wasn't tied to any particular Wall Street firm changing its tune. It was just a correction within the negative run that the stock has experienced through most of the past two months. Twilio is doing its part to change the narrative for the better. Earlier this month it posted quarterly results where revenue easily surpassed expectations and its deficit was narrower than the loss that analysts were forecasting. Twilio now needs to build on that momentum, justifying the valuation for a company that remains one of this year's best performing IPOs despite the autumn swoon.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.