Jefferies Bullish On Twilio, Sees Impressive Growth At Scale

Twilio Inc TWLO shares gained more than 12% on Tuesday on the strength of some bullish analyst commentary from Wall Street.

The Twilio Analyst: Jefferies analyst Samad Samana initiated coverage of Twilio with a Buy rating and $451 price target.

The Twilio Thesis: Samana said Twilio has been successfully disrupting the communication space for several years now. He said Twilio should be able to maintain impressive growth numbers even as the business scales up.

Since 2016, Twilio has generated about 60% compound annual revenue growth, and Samana said the company should continue to grow at above a 30% annual rate through at least 2023.

Twilio’s focus on developers differentiates the company from its high-tech peers, Samana said. In addition, the company has been focusing more on landing large customers and working more closely with Deloitte and other partners.

Related Link: Why CRM Innovator Twilio Wants To Spend $3B On Segment

Twilio was modestly profitable in 2020, but Samana said that profitability will increase significantly over time as the company dials back its investments and adds more high-margin revenue streams. Twilio’s long-term gross margin target is above 60%.

“Messaging carries a ~45% GM, but Voice, Email and App Services are all well above 70%,” Samana wrote in the note.

From a valuation perspective, Twilio shares are trading roughly in-line with its high-growth tech stock peers. However, Samana said Twilio deserves to trade at a premium valuation to other growth stocks because of its dominant positioning in a nascent growth market.

Benzinga’s Take: Twilio shares are certainly pricey at around 31.8 times sales, but it’s easy to see why investors are willing to pay up for a company putting up the growth numbers that Twilio is. Additional upside in the long-term will be determined by just how many years Twilio can keep that growth momentum going.