Twilio's New 'Unexpected' Relationship With Uber

Twilio Inc TWLO plummeted after the company's earnings report, which also contained a concerning headline relating to one of its biggest clients.

As noted by CNBC, Uber uses Twilio's technologies to connect its drivers and passengers while simultaneously keeping everyone personal information secure. In Twilio's earnings report, CEO Jeff Lawson cautioned investors that revenue from Uber will decline moving forward as the company is "changing the way they do messaging."

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

William Blair's Bhuvan Suri commented in a report that Twilio's announcement was "unexpected" as Uber is looking to shift to a multi-sourcing vendor program to optimize its communication needs by use-case and geography.

Uber is looking to find a vendor (or vendors) that can satisfy its price and quality requirements. The analyst believes Uber was already using Nexmo's technologies prior to the change as many larger businesses tend to dual source.

But at the end of the day, Uber has now added several new vendors which has a "direct negative impact" on its usage of Twilio.

"This is clearly a negative for Twilio, given the customer concentration associated with Uber."

The Math

Suri noted that Uber contributed 17 percent of Twilio's total revenue in the fourth quarter and 12 percent in the most recent quarter, which implies a 25 percent decline sequentially.

Suri also pointed out that Twilio's expects the decline in revenue from Uber to continue throughout the rest of the year, which prompted management to slash its revenue guidance by $11.5 million at the midpoint. Nevertheless, the company is still expected to boost its revenue by 38 percent to 40 percent, which is still an impressive figure versus its peers.

The analyst stated that Twilio's second-largest customer accounts for just 2 percent of total revenue so Uber's move isn't  expected to be a trend that can be seen with other customers.

Bottom line, Suri believes Twilio is a market leader in its space and its competitors don't have the quality and performance to match Twilio, which serves as a catalyst for the stock.

Shares of Twilio remain Outperform rated.

Image: Nucleo Editorial, Flickr