KeyBanc: 5 Reasons To Be Aggressive On Twilio

This year is one of inflection for the entire cloud software space, with companies like Twilio Inc TWLO expected to see a surge in demand for their products and services over the next five years, according to KeyBanc Capital Markets.

The Analyst

KeyBanc's Brent Bracelin upgraded Twilio from Sector Weight to Overweight with a $99 price target.

The Thesis

The bullish case for Twilio's stock is based on expectations for revenue to approach $2 billion by 2022, Bracelin said in the upgrade note. (See his track record here.)

The analyst named five drivers for the projected revenue growth:

Twilio successfully diversified and expanded its revenue mix as the total customer base expanded from 37,000 in the end of 2016 to 57,000, Bracelin said. As a result, revenue growth has now accelerated in the past two quarters after three years of deceleration.
Twilio has succeeded in expanding its customer count, and the company simultaneously accelerated average revenue per user growth, the analyst said. Average monthly revenue per customer — excluding Uber — rose 24 percent year-over-year last quarter to $777, which implies around $9,000 in annualized spend per customer versus $7,000 at the end of 2016, he said.
Twilio's usage-revenue drivers are underappreciated by investors, as the segment has grown on average by 63 percent since its initial public offering and now accounts for 88 percent of sales versus 73 percent at the start of 2016, according to KeyBanc.
Twilio appears to be following AWS' model by expanding its API portfolio into higher-level application services, Bracelin said. Twilio announced last year that multiple new application services like Authy and TaskRouter grew at a triple-digit rate.
At its core, Twilio is well-positioned to address a $100 billion total addressable market with exposure to enterprises that are spending $1.3 trillion per year on systems, software and services, in KeyBanc's view.