It's been amazing to witness the way that technology has changed how businesses operate over the last decade. With new data storage capabilities that can dramatically improve the efficiency of how companies function, most businesses are quickly making the move to the cloud. Major corporations are rapidly coming to the realization that delaying the inevitable shift to cloud data storage will hurt them in the long run. This is a big reason why we are seeing such strong performance from cloud-based services stocks.
One company in the cloud-based services industry has been experiencing lots of positive momentum lately. Twilio Inc (NYSE:TWLO) is a cloud communications platform that essentially helps companies add voice, messaging, and video capabilities to their existing applications so that they are able to communicate with their customers. It’s a platform that lots of businesses need at the moment, and the stock price has been soaring.
Growing technology stocks can be difficult to value, which means there are often great investment opportunities to be found in the sector. That’s why we are going to take a more in-depth look at Twilio’s business model and determine whether or not Twilio stock is a buy at the moment.
Cloud Computing and Why Twilio is in High Demand
Before cloud computing was an option, businesses were limited to storing and accessing data on physical hard drives. You can imagine just how much data storage space was required for large companies. Now, businesses can use cloud computing to access all of their data over the internet. This has lead to significant cost savings and efficiency boosts for the companies that have made the move into the digital age.
The migration of major companies into the cloud will definitely continue, which is part of why Twilio’s services are in such high demand. Twilio offers a unique platform in the cloud services marketplace that assists companies with emails, text messaging, and video calls. The “communications-platforms-as-a-service” business model generates recurring revenue from subscriptions to their platform.
As stated in Twilio’s About page “By making communications a part of every software developer’s toolkit, Twilio is enabling innovators across every industry – from emerging leaders to the world’s largest organizations – to reinvent how companies engage with their customers.” It’s not hard to imagine a scenario in the near future where any business that wants to communicate with their customers digitally uses Twilio’s platform to do so.
Surprise Q1 Earnings Beat
One big reason why Twilio’s stock price has been in the clouds lately has to do with their surprisingly strong Q1 earnings. The company reported its Q1 results earlier in May and astonished the market by beating both revenue and EPS estimates. The company reported total first-quarter revenue of $364.9 million, which was 57% year-over-year growth.
Twilio also has a strong cash position that will allow them to continue their growth going forward. Although the company withdrew its full-year guidance, it appears that Twilio’s management team is focused on growth and making the investments needed to allow the company to come out of the current environment in a much stronger position. The positive earnings report and commentary from the company’s management sent shares soaring to all-time highs of $197.15, which is why it makes probably makes sense to wait for some profit-taking before opening a new position.
Accelerated Shift to Remote Work and Digital Communications
“In many ways Twilio was built for this moment,” stated Twilio CEO Jeff Lawson on a conference call with analysts earlier this month. He was referring to how the global health crisis is accelerating the digitalization of many companies and how Twilio is helping. In fact, the company has already benefitted from healthcare and education businesses moving towards digital communication services as a result of stay-at-home orders.
For example, people that need medical assistance are able to communicate with their doctors remotely thanks to Twilio’s communications platform. This is just one instance of how Twilio is benefitting from the current situation. Many businesses have migrated to cloud computing over the last several months as a result of the health crisis, and Twilio is taking advantage. The accelerated shift to remote work and digital communications as a result of COVID-19 has absolutely benefitted companies like Twilio and the trend will likely continue going forward.
Reaching for the Cloud
Twilio is a very intriguing growth stock that should continue to perform well in the future, particularly when some of its biggest clients in the Travel, Hospitality, and Transportation sectors return to business as usual. When you compare the valuations of other hot tech growth stocks like Shopify and Zoom, Twilio seems much more appropriately valued. However, the stock price is up over 90% this year, which means buying right now probably isn’t the best idea. If you are interested in adding shares, keep an eye out for profit-taking dips in the future.7 Stocks to Buy That Will Benefit From Inflation
There are two narratives that are getting conflated when it comes to inflation. The first is whether or not inflation is occurring. And the second is whether inflation will get out of control.
To the first point, the clear answer is absolutely. There are price increases in everything from commodities to semiconductor chips. And even though lumber prices have gone down it’s a good bet that many consumers will put off their deck projects for another day.
And, of course, inflation numbers tend to strip out gas and groceries – but those are precisely the areas where consumers feel inflation the most. Inflation is real.
But is this just “transitory” as many analysts and the Fed itself claim? Or is it only the beginning of something much worse? The answer to those questions is probably above our pay grade.
As an investor, the inflation narrative only changes where you allocate your investment dollars. And for the most part, you’re probably only looking at a small percentage of your portfolio.
However, the first rule of investing is to not lose money so it’s important to identify companies that can provide a hedge against inflation – transitory or otherwise.
That’s the focus of this special presentation. Right now there are many strong companies that benefit when inflation is on the rise.
View the "7 Stocks to Buy That Will Benefit From Inflation"