Two Things Investors Should Know About Twilio's Top Line
Cloud communications company Twilio (NYSE: TWLO)is this year's hottest tech IPO. In this clip fromIndustry Focus: Tech,Motley Fool analysts Dylan Lewis and David Kretzmann explain how the company breaks down their revenue and the metrics that investors need to know to understand how they make money.
A full transcript follows the video.
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This podcast was recorded on Sept. 30, 2016.
Dylan Lewis: So, let's talk about a couple different thingsthat I think people should know about this business. You look at their revenue, and they break down the top linea couple different ways,one of the most important ones, in my view, is by customer type. Youlook at their most recent quarter, they break into base andvariable revenue. Variable revenue isrevenue from active customer accounts. That'speople that have spent,I believe it's $5 in the trailing month. So, revenue from active customer accountswith large customers, so,customers that make up at least 1% of thecompany revenue, that have never entered a 12-month minimum revenue contractcommitment. The idea is,they don't have a minimum spend with Twilio, it's variable. And that was $8.1 million in Q2. Base, which iseverything except that, so,pretty much, contracted revenue,at this point, with minimum spends, $56 million. So, they slant heavily toward base revenue, about87% is coming from thereat this point. If you look, year-over-year growth,84% year-over-year growth with base revenue, only 12% growth withvariable. They're clearly pushingthe business that way.
David Kretzmann:Right. Andthey look at base revenue as amore reliable indicator of where the business is going. Understandably, you haveat least a minimum contractof revenue coming in from those customers. So that is a more reliable, stableindicator of where revenueis going. That's why the company focuseson it. It is the bulk of theiroverall sales. So that should be the sales number thatinvestors pay the most attention to.
Lewis:Andas of last quarter,the company had nine variable customer accounts,and one of them was WhatsApp. All nine, total,make up about 13%of the revenue contribution. Looking at how they break out geographically, the U.S.makes up a majority of their revenue at this point, about $55 million. Internationally, only about $10 million. Year-over-year growth has beenpretty consistent for both of them. U.S. is at 69%,international is at 75%. I think one of the frustrating things with Twilio is that they do not break out revenue by product segment or by use case. That can make it a little bit tougher to see how businesses areincorporating their products. It would be nice to havethe insight of how two-factor authentication is used in 35% of our customers,and just get a sense of where their strengths are at the moment,and what the market is looking forin terms of communication help.
Kretzmann:Yeah,really,besides anecdotal evidence,of what Home Depot says they're using Twilio for or any other company,we don't necessarilyhave that great of an idea of,what are the main Twilio products that their customers are using? Besides anecdotal evidence -- and sometimes the company will share a little bit more, but it is hard to havevery detailed numbers in those areas.
David Kretzmann owns shares of Home Depot. Dylan Lewis has no position in any stocks mentioned. The Motley Fool recommends Home Depot. 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.