Analyst: Twilio's Fundamentals 'Remain Strong' Despite Disappointing Report

Twilio Inc TWLO, a once-hot stock that soared after its 2016 initial public offering, tanked more than 30 percent.

Twilio's stock plummeted after the company report a strong first-quarter earnings report Tuesday afternoon, but the company's guidance for the full-year fell well short of analyst expectations. Despite the stock's plunge, William Blair's Bhavan Suri isn't throwing in the towel.

In a report Wednesday, Suri maintained an Outperform rating on Twilio's stock with no assigned price target under the belief that the company's fundamentals "remain strong" as evidence by a "healthy quarter" for new logo wins. Specifically, the company added over four thousand base customers which marks an increase of 42 percent year-over-year.

Suri said the company showed an "impressive" dollar-based net expansion rate of 141 percent, which marks a decrease from 155 percent in the prior quarter. The analyst acknowledged that while it's unlikely for Twilio's dollar-based net expansion to be sustainable at these levels, there is little doubt the company can maintain a "best-of-breed metric" relative to other SaaS vendors.

Attractive Valuation

Suri noted Twilio's stock was trading at 4.2 times his 2018 revenue estimate versus its fast-growing SaaS peers that trade at 6.3 times and the platform-based group median of 4.8 times.

Despite the discount in the valuation, Twilio is expected to boost its base revenue by 39 percent in 2017 and 2018 percent the following year, which compares to the group median of 30 percent his year and 25 percent next year.

Bottom line, Twilio's valuation is "attractive" at these levels as Twilio is able to benefit from the favorable industry dynamics such as growth in cloud communication systems and increased demand for embedded and customized communications applications.

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