“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, April 08, 2019

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

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"Trading Capital Management"



Option Trade – Twilio Inc (NYSE:TWLO) Calls

Monday, April 08, 2019

** OPTION TRADE: Buy the TWLO MAY 17 2019 130.000 CALL at approximately $7.40. Place a pre-determined sell at $14.80.

Also include a protective stop loss of $3.00.

Twilio Inc. (NYSE:TWLO), offering a Cloud Communications Platform, which enables developers to build, scale and operate real-time communications within software applications, has been in an impressive long-term uptrend, more than tripling in value on a year-over-year basis. More recently, the cloud shares hit a record high of $136 on March 21 before easing back to a historically bullish trendline, last seen up 0.7% at $123.20.

TWLO closed the last session within one standard deviation of its 40-day moving average. There have been seven other times the stock has pulled back to support at this moving average after a lengthy stretch above it, and one month later, Twilio was up an average 6.8%, with 86% of those post-signal returns positive.

Therefore, play the pull-back!

Shares are up 245% over the last year, and more than 400% over the last three years. Revenue last year jumped 63% to $650.1 million, and even accelerated, rising 77% in the fourth quarter. Twilio's dollar-based net expansion rate, which measures the revenue from one cohort of customers from year to year, was 140% last year and 147% in the fourth quarter, meaning the company's business is growing by expanding its current relationships as well as by adding new customers.

It also recently closed on its acquisition of SendGrid, which has given it email capabilities, and should help fuel more growth.

Twilio is not yet profitable on a GAAP (generally accepted accounting principles) basis; the company is spending heavily on both research and development; and sales and marketing, in order to drive growth. It was marginally profitable last year on an adjusted basis, with net income of $11.5 million after backing out expenses like stock-based compensation.

As Twilio is one of last year's hottest stocks again in 2019, at least one Wall Street pro sees Twilio moving even higher. Deutsche Bank analyst Michael Turrin is bumping his price target on the stock from $130 to $150, the highest price goal for the provider of in-app communication solutions.

About Twilio…..

Twilio provides a service that helps companies communicate with their clients -- via messaging, video, audio, or (thanks to a recent acquisition) email. It is the leading provider of in-app communication solutions. From resetting passwords to connecting you with the driver, food, or handyman you just booked online, Twilio let’s growing companies stay connected without users ever having to leave the app. When you use Lyft or get a message that your seat is ready at a restaurant, Twilio is at work behind the scenes. The company gets paid based on usage of these cloud-based solutions.

Past Performance…..

Twilio became a wealth changer last year, soaring 278% in 2018. There is no larger company with a greater return among stateside-listed investments. The good times continue in 2019, as the stock is up another 52% so far this young year.

Last year, dollar-based net expansion came in at a mind-boggling 140%. That means the company's tools are becoming embedded deeper and deeper into its customers' infrastructure, which creates a wide moat via high switching costs.

According to management, we're just scratching the surface of what Twilio is capable of.

The number of active accounts on Twilio’s platform has soared 31% over the past year, and revenue is growing even faster -- up 77% -- as folks pounding their mobile devices are leaning more on Twilio-enhanced apps. Growth should continue at a heady clip this year. Twilio sees revenue moving 64% to 66% higher in 2019.  

Future Earnings…..

Guidance calls for revenue to climb 72% to 74% in the current quarter and 64% to 66% for all of 2019, but Twilio has been historically conservative in its public forecasts. The shares aren't cheap, but they also didn't seem cheap a year ago and now Twilio has appreciated 475% in value since the start of last year. A strong first quarter could keep the party going. 

In 2020, they expect its revenue and earnings to rise 32% and 160%, respectively, after it laps the SendGrid acquisition. Over the next five years, they expect Twilio's non-GAAP earnings to grow at an average rate of 37% per year.

Next Earnings Report…..

Twilio is scheduled to announce its next quarterly earnings results on Tuesday, May 14th.

Wall Street analysts forecast that Twilio will report $223.95 million in sales for the current fiscal quarter. Eleven analysts have made estimates for Twilio’s earnings, with the highest sales estimate coming in at $227.20 million and the lowest estimate coming in at $222.14 million. Twilio posted sales of $129.12 million during the same quarter last year, which would indicate a positive year over year growth rate of 73.4%.

Influencing Factors…..

The key to Twilio's appeal for developers is that communication needs can be met within the app. The next time your Lyft driver lets you know that she's waiting for you or when you need to reset your aunt's Hulu password, it can all be done within the cozy confines of the app itself. There are now 64,286 active customers leaning on Twilio for at least some of their in-app offerings, 31% more than it had a year earlier.

Revenue is growing even faster at Twilio as developers and end users alike find themselves relying more and more on the sticky features. Revenue soared 77% in the latest quarter, the fourth time in a row that year-over-year gains on the top line have accelerated. Twilio's dollar-based net expansion rate is also picking up as the platform becomes more engaging, clocking in at 147% in the fourth quarter (its strongest retention in two years).

Analysts Opinions

Twilio had its price objective lifted by equities researchers at KeyCorp from $132.00 to $150.00 in a note issued to investors on Monday, March 25th. The brokerage presently has an “overweight” rating on the technology company’s stock. KeyCorp’s price target points to a potential upside of 15.94% from the stock’s current price.

Morgan Stanley began coverage on shares of Twilio in a research note released on Friday, March 15th. The firm issued an equal weight rating and a $130.00 price objective on the technology company’s stock.

Several other equities analysts have recently commented on the company…..

  • Argus lifted their price objective on shares of Twilio to $125.00 and gave the stock a buy rating in a report on Thursday, February 14th.
  • Guggenheim began coverage on Twilio in a report on Monday, March 11th. They set a buy rating and a $140.00 price objective on the stock.
  • Zacks Investment Research upgraded Twilio from a “hold” rating to a “buy” rating and set a $146.00 price target for the company in a research report on Friday, March 22nd.
  • Finally, Piper Jaffray Companies increased their price target on Twilio to $135.00 and gave the company an overweight rating in a report on Wednesday, February 13th.

Three equities research analysts have rated the stock with a hold rating and twenty-one have issued a buy rating to the company. The stock currently has a consensus rating of Buy and a consensus price target of $115.54. There will soon be a rush of new analysts ratings and pricings in the near future as Twilio regains its momentum.

Summary

Twilio enjoys a first mover's advantage in this market, and its generating accelerating sales growth over the past year. Its base revenue (from customers who signed 12-month minimum contracts) and its dollar-based net expansion rate (its sales growth per customer) also remained robust.

TWLO has a quick ratio of 6.33, a current ratio of 6.33 and a debt-to-equity ratio of 0.99. Twilio has a 12-month low of $36.68 and a 12-month high of $136.00. The stock has a market cap of $15.12 billion, a price-to-earnings ratio of -153.03 and a beta of 1.34.