beyond stock splits: 3 top growth stocks to buy now (TWLO)

The work in artificial intelligence (AI) has accelerated over the last decade and is becoming a part of our everyday lives. Companies in numerous industries are racing to adopt AI to improve operations and the customer experience or make sense of the massive amounts of data available. We asked three Motley Fool contributors to highlight one company that's making strides in AI that would be worth buying and holding for the next decade. They came up with Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), Etsy (NASDAQ: ETSY), and Zebra Technologies (NASDAQ: ZBRA). 

Twilio: Incredible growth opportunity at a reasonable price

Brian Withers (Twilio):  Twilio (TWLO -0.50%) isn’t a household name, but you may have experienced its products and not even known it. That automated call reminding you of a medical appointment or a text updating you on your e-commerce shipment were likely powered by Twilio’s communications platform. As more companies look to engage with their customers digitally, you would think its stock would be an investors dream. But over the last three years, it’s been more of a nightmare. 

Since April 2019 the stock is down a little over 10%. But the path to get there was crazy. The stock took off during the coronavirus and peaked in January 2021 at triple the price it was 36 months ago. Ever since the stock has been on a downward slide to where it is today. The stock’s high price was likely too optimistic, but today, I think the stock is a bargain at 2019 prices. Let’s look at what’s happened to the company’s results over this period of time.

Source: Company earnings releases. Table and calculations by author. 

Three years ago, the company had just published its full year 2018 results. The $650 million full year revenue was a torrid 63% year-over-year gain, but it was losing money. Given its strong base of more than 60,000 customers and a massive $748 million cash and investments it had all the right ingredients to fund growth in the years ahead. That’s exactly what happened. 

In February, it published its 2021 results. Revenue is now an amazing $2.84 billion and it’s still growing at a torrid pace. The company has been acquisitive the past few years, so the 61% year-over-year growth includes some revenue from acquisitions. The organic top-line growth for 2021 is still impressive at 42%. Naysayers will point to the company’s increasing costs and declining operating income. This is something to watch, but as it integrates its recent $3.2 billion acquisition of Segment (Nov 2020) and the $850 million Zipwip purchase (July 2021) this should improve. Its cash position has significantly improved and its solid customer base has almost quadrupled. I’d say the company is in a much better position than it was three years ago.

Even with the impressive track record, growth investors are always looking to what’s ahead. The good news here is that management has shared its confidence in its future growth prospects. In its most recent earnings release, the company reiterated that it can grow at an organic rate of 30%-plus year-over-year for the next three years. That’s some impressive growth for a company valued at a 7.5 price-to-sales ratio. 

With the stock trading around $120, it’s unlikely management will execute a stock split anytime soon. But it doesn’t need it. The company is poised to produce great returns for shareholders. You would be wise to pick up a few shares of this growth stock today. In five or more years, it’s likely that your future self will owe your today’s self a big thank you.

Key point: This communications specialist could be a big winner in the years ahead.