These 3 Software Companies Are Screaming Bargains Right Now (TWLO)

This customer engagement platform is being underestimated

Brian Withers (TWLO): Twilio reported a 49% year-over-year organic revenue growth for its most recent quarter and the market yawned. The stock even sold off almost 10% the day after earnings were released. Overall the shares are down more than 30% off the high from earlier in the year, making this growth stock a bargain today for long-term-minded investors. Let’s look at why.

First, the results from this quarter were stellar. Revenue was a solid $590 million, including $45 million from its most recent acquisition of the customer data platform company, Segment. This makes its organic growth essentially flat quarter over quarter, but there’s good news that the naysayers may be missing. Customer growth continues to be solid and presents new cross-selling opportunities between Segment and legacy Twilio customers. This is already starting to pay off as management reported a key customer win in the quarter. Chief Financial Officer, Khozema Shipchandler, indicated that the integration efforts are on track, and highlighted “strong collaboration models” between non-integrated functions like marketing and sales. 

Data source: Company earnings reports. *Note: Q1 2021 includes $44.6 million in revenue from the Segment acquisition which is not included in prior quarters. **Q1 2020 DBNE doesn’t include the impact of the SendGrid acquisition.

Lastly, customers continue to vote with their dollars spending 33% more than they did in the previous twelve months. This is the fifth sequential quarter of 130%-plus dollar-based net expansion and doesn’t yet include benefits from the recent acquisition. 

Management expects at least 47% year-over-year revenue growth next quarter including contributions from Twilio Segment. Integration of the newly acquired customer data platform is underway and the research and development (R&D) team is being reorganized to accelerate the efforts. Segment’s founder and CEO, Peter Reinhardt, will move into one of the three key R&D leadership roles reporting to CEO Jeff Lawson and will be responsible for the data platform. Simon Khalaf has been promoted to lead the communications platform development team. With the resignation of Chee Chew, Chief Product officer, the company will start a search for the third R&D leader for its core platform.

Segment’s customer data segment contributed less than 8% of the overall revenue this quarter, but the opportunity is tremendous. The market for these tools is estimated at $17 billion, but it also strengthens Twilio’s overall offering for its customers, providing more chances to upsell and become more deeply embedded into a customer’s information technology stack. The future is incredibly bright for this fast-growing software platform which makes it look like a screaming bargain right now. Long-term-focused investors could do well to add a few shares to their portfolio today.