Twilio (NYSE: TWLO)went public earlier this year to incredible success. In this segment from Industry Focus: Tech, Motley Fool analysts Dylan Lewis and David Kretzmann talk about two metrics that investors can use when evaluating Twilio's performance -- dollar-based net expansion rate and active customer accounts -- and how Twilio has grown them since its IPO.
A full transcript follows the video.
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This podcast was recorded on Sept. 30, 2016.
Dylan Lewis: Thesecond thing that I think it's really important to keep in mind with this company, is the number of their dollar-based net expansion rate. What this figure does is it compares the revenue from a cohort of active customer accounts, other than their variable customer accounts. People that were base customers and had contractcommitments a year ago to the most recent quarter. Basically, this is a measure of Twilio'sability to get existing customers to continue to spend,either through increased product usage,maybe extending into new use casesand integrating other elementsof their building block platform,or branching out and building their own customer base,which is something that you want to see from people that are using your products.
David Kretzmann:Exactly. Taking a higher-level look at dollar-based net expansion rate --they have a lot of complicated terms at Twilio,and that's something that I don't necessarily like. As an investor, I would rather that a companysimplify this for investors. They have a lot ofinsider jargon still.I wouldn't be surprised if they tried to simplify that going forward.But since they're right off the tail of a hot IPO,they don't have to worry about that right now. Down the road, I think they willhave to simplify their statements. But, I look at dollar-based net expansion rate,it's really a measure of how much more or lessexisting customers or active customer accounts arespending compared to last year's quarter. So it's a comps number,and definitely an important one to watch. It has been expanding muchfaster than total salesas a whole. That gives us an indicator that theexisting customers from the past yearare spending more time, more money using Twilio'sproducts and making up a bigger portionof total sales, which wedefinitely like to see.
Lewis:Listeners,if you're still lostwith this idea, I know there's a lot of hyphens in dollar-based net expansion rate, you can think of this figure as comps, like you talked about, or same-store sales, the way a retailer or a fast-casual restaurant would have. What you had last year, and what you have this year, comparing to see, is the growth coming from your existing base of restaurants or your existing base of customers, or is it coming from you growing new customers? You want to see both.
Kretzmann:Yeah,you want to see both, but it's a great signthat you have a product that people like/need,if your existing customers are spending more every quarter, every year. So far, for Twilio, it's beenvery impressive, whatthis number has been.
Lewis:Yeah, Q2 2016, it clocked in at 164%, which ispretty amazing.
Kretzmann:That'sactually an accelerationfrom the same quarter last year. That number is accelerating. It's already very impressive growth,but to see it accelerating, we love to see thateven more.
Lewis:Yeah. The third metricI think is important to keep an eye onis active customer accounts. Active customer accounts, as Twilio defines it, is anindividual account that hasgenerated at least $5 of revenuein the past month of any period. As of Q2, the company'sactive customer accounts were just over 30,000, up from 21,000 a year earlier. You're seeing nice,steady growth there. If you're looking atsome of the key growth metrics for this business,they are growing customer accounts,and they're also gaining more valuefrom the customer accounts they had a year ago,two things that you really like to see.
Kretzmann:Right,and the active customer accounts number, that'salmost tripled since 2013,when they had about 11,000active customer accounts. Now, like you said,it's over 30,000. You love to see that number growing,and then themoney that those customers are spending growing,and so far, Twilio has both of thosetailwinds behind its back. That's part of the reason the companyis putting up some impressive growthnumbers right now.
Lewis:Yeah,Wall Street has certainly beenimpressed so far. Pushedthe business into a pretty gaudy valuation.
David Kretzmann has no position in any stocks mentioned. Dylan Lewis 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.