Is Twilio Inc. a Buy?

MarketsMotley Fool

Another week, another Twilio Inc. (NYSE: TWLO) bull growing more optimistic. MUFG analyst Stephen Bersey is jacking up his price target on Twilio, raising his goal on the shares from $34 to $43. Bersey is excited about this week's unveiling of Twilio Flex, a programmable contact center vertical that should be a major new platform for the company.

Bersey feels that Twilio Flex can open up a significant global opportunity with so many customers worldwide saddled with outdated legacy hardware and bundled software solutions. He's sticking to his bullish overweight rating. The new price target suggests that the provider of in-app communications solutions has just 9% of upside from current levels, but sticking to his previous price goal would be hard to justify with a bullish rating.

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Rolling into 2018

Shares of Twilio hit another 52-week high on Tuesday, and are trading 68% higher so far in 2018. Twilio's been on a roll since posting better-than-expected quarterly results. Revenue rose 40% in the fourth quarter, and while profitability remains elusive, its adjusted deficit was roughly half the loss that analysts were targeting.

It remains to be seen the kind of impact that Twilio Flex will have on the company, but at the very least the arrival of what is being billed as the first fully programmable cloud contact center platform should be incremental to results. The fact that its pool of developers keeps growing -- up from 34,457 to 48,979 over the past year -- can only help as it launches new offerings.

MUFG's Bersey isn't the only analyst to recently chime in as bullish on Twilio. Nikolay Beliov at Bank of America Merrill Lynch initiated coverage of the tech darling with a buy rating and a $45 price target two weeks ago. He feels that its competitive advantages should help set it apart from cheaper competitors, and he's modeling $1 billion in revenue by 2021.

Twilio's stock isn't cheap, and not just because it's hard to tag an earnings multiple on a deficit-saddled company. Its market cap is nine times Twilio's trailing revenue, and even the seemingly ambitious $1 billion target in 2021 revenue prices the stock at a multiple of nearly four times its top-line results four years out.

There are also risks here. Some of Twilio's largest customers have kicked the tires of rival in-app communications solutions, and it will always be susceptible to someone introducing a better mousetrap. It also disclosed a potential material weakness in its internal controls in a regulatory filing two weeks ago. However, it's hard to bet against Twilio given how fast it's growing and its best-of-breed status during this mobile revolution. Some of the recent price targets may make it seem as if we're close to the ceiling, but we already saw MUFG's analyst lift his price target on Tuesday to keep up with the buoyant share price. If the new highs keep coming, the bullish Wall Street updates should continue.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Twilio. The Motley Fool has a disclosure policy.