Shares of cloud-based communications platform Twilio (NYSE: TWLO) have more than doubled so far in 2018, bringing the company's valuation nearly back to the all-time highs reached shortly after going public in 2016. While all the hype in the world of communications has been around the up-and-coming 5G wireless network, it could take some time for that service to make a meaningful impact for Verizon and AT&T. Meanwhile, Twilio's fast addition of customers on its customizable cloud-based service is translating to positive share price appreciation right now.
What are cloud-based communications?
Twilio operates an application programming interface (API) for software developers and programmers to add voice, text, video, and authentication capabilities to apps. None of that is exactly new; the difference from standard communications networks is that Twilio enables the same services via the cloud.
That means while you may never have heard of Twilio before, it's likely you have utilized its services. Ride-sharing apps Uber and Lyft utilize Twilio for real-time communications between drivers and customers; Hulu's call center makes use of its services to improve the caller experience; and Airbnb uses Twilio to automate rental confirmation texts to travelers and hosts. Other customers include Coca Cola, Intuit, and Nordstrom, among many others.
What's the value proposition, here? It's all about increasing engagement with customers and making the overall experience a better one. Making communications available via an app or website is more convenient for a new generation of consumers, and Twilio's services like artificial intelligence and automation can also help companies reduce the cost of operating a call center and managing other communication initiatives. It's a win-win situation for customers and for the places where they do business.
Twilio's M.O. and how it's working
Lots of companies offer similar services as Twilio, but this communications platform is one of just a handful offering all of them in a convenient cloud-based package. That means while many customers come to Twilio seeking one service, they ultimately end up using other APIs on the cloud later on down the road. That shows up in the net expansion rate, which measures revenue from existing customers and is a key metric for companies that charge a recurring fee. In the first quarter of 2018, that figure was 132%, implying existing customers spent 32% more than they did last year.
Expanding relationships is important, but Twilio is going after new ones, too. Sales and marketing expense increased 55% year over year in the first quarter, which equated to a 33% bump in customer count, to 53,985 at the end of the first quarter. Paired with that net expansion rate figure, revenues were up 48% to kick off 2018.
It's worth noting that Twilio isn't for every investor. This company runs at both an operating and net loss, both of which increased from 12 months ago by 64% and 56%, respectively. That can make for one volatile stock, as can be seen from Twilio's performance thus far as a public company.
For those willing to handle some gut-wrenching moves, though, Twilio's losses for the sake of more sales later could really pay off. With communication via the internet and digital applications only increasing in importance, there's a good chance that should pan out.
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Nicholas Rossolillo and his clients own shares of Coca-Cola and Verizon Communications. The Motley Fool owns shares of and recommends Intuit and Twilio. The Motley Fool owns shares of Verizon Communications. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.