How do companies coming off the back of a 300% run in six months keep the momentum going for another six months? One way at least is to announce a $3 billion acquisition, or at least that’s how Twilio (NYSE: TWLO)
has played it. On Monday of this week, the San Francisco headquartered, cloud communications company
made headlines with their purchase of Segment. The subsequent 10% jump in shares should tell you everything about how much Wall Street liked the news.
Segment is a customer data platform that has been making a big splash in the world of SaaS sales recently. CEO Jeff Lawson said with the news; "combined with Twilio's Customer Engagement Platform, we can create more personalized, timely and impactful engagement across customer service, marketing, analytics, product and sales. We are thrilled to welcome Segment to the Twilio team". Their addition to Twilio’s portfolio couldn’t really have come at a better time, as the latter has been making a big splash of their own.
Twilio shares were just starting to come out of a multi-month slump when coronavirus hit equities in March. They were sent back to 2018 levels but didn’t hang around there long. As part of the stunning rally in tech names this summer, they caught the wave and were at all time highs by May. Solid fundamentals in their earnings numbers have paved the way forward to multiple all-time high prints since and they’ve become a firm favorite of Wall Street. And the reaction to Monday’s news suggests they’re going to remain a firm favorite for a while yet.
Rosenblatt Securities were one of the first to react to the news and came out on Tuesday with an upgrade to shares, moving them from Neutral to Buy. Analyst Ryan Koontz raised his price target from $255 to $375, which from Friday’s closing price suggested an upside of more than 25%. In the two sessions since the news broke, shares have already crossed the $340 mark with barely a second thought.
Favorite of Wall Street
Koontz is particularly bullish about Twilio maintaining their 30% growth while Segment will boost its customer engagement strategy while also making its product more sticky. This in turn will reduce customer churn and drive the recurring revenue that investors love to see. JMP Securities also came out with an Outperform rating on shares and raised their price target for good measure. Their analyst Patrick Walravens noted Twilio’s impressive leadership and strong competitive position as two key factors in continued growth.
All this bullish momentum is just building on that which Twilio brought with it into Q4. Back in September it had Cowen and Morgan Stanley both reiterating their Outperform and Overweight ratings respectively. Both sell-side firms were, at the time, looking forward to widening margins driving increased profitability. At the start of October, the company hinted that it expected to easily beat forecasts for its Q3 revenue numbers which of course Wall Street just lapped up.
It remains to be seen what Q3 numbers come in at but for now, Twilio can do no wrong. Other big sell-side names like Piper Sandler, RBC, and Wells Fargo have been out with top-level ratings in recent weeks and raised price targets which are sure to be revisited in the coming days.
A strong market position, a new acquisition, and shares at all-time highs - what’s not to like?
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