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Twilio (TWLO) Stock | NYSE: TWLO

Enabling Customer Communication

Twilio is a communications-platform-as-a-

service company that allows software developers to integrate messaging and communications functionality into existing or new applications via application programming interfaces and software development kits.

The firm's Programmable Communications Cloud addresses several use cases, including Programmable Voice to make and receive phone calls, email platforms, Programmable Messaging for SMS and MMS delivery, and Programmable Video, which allows developers to embed video functionality in mobile and web applications.






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Where Are We Now

Updated on: 11/13/2021

Conviction Score


Twilio’s API communications solutions are a no-brainer for a digital-first world. Regardless, the company has not yet turned a profit and that makes us skeptical of the valuation even though the underlying business is growing very quickly. We caution investors to consider their risk tolerance and time horizon before buying Twilio.

  • 65% revenue growth since last year is nothing short of incredible. Twilio is executing well in the ever-growing digital-first world we live in.

  • Twilio achieved a huge milestone of 250,000+ customer accounts in the most recent quarter. Additionally, current customers continue to expand their accounts with Twilio – revenue dollar-based net expansion at Twilio is over 130%.

Investment Thesis

  1. Twilio is an “API-first” software company providing communication APIs for software developers to integrate SMS text, email, voice and chat communication features into their technology stack.
    An API is an acronym for Application Programming Interface. Simply put, an API is software allowing for two different applications to talk together.

  2. Twilio operates a usage-based model. This model creates less friction when business want to begin implementing Twilio’s offerings into a new tech stack, as companies are not required to pay any upfront costs. The usage model allows for both businesses to grow together and incentives are aligned well between Twilio and their customers.

  3. A developer or startup can integrate Twilio’s APIs into their application very quickly giving them strong customer acquisition growth of both small and large enterprises. Once integrated into a technology stack, Twilio’s offerings are very sticky.

  4. Twilio is making acquisitions to become an omnichannel offering of communication APIs.

  5. Twilio possesses risks including margins, pricing power, competition, customer concentration, open-source options and the risk that all API-first businesses face which is large businesses creating internal customer features replacing the need for Twilio’s services. Although we do believe Twilio’s competitive advantages and attractive pricing make that very unlikely.

  6. Twilio’s advancements in bridging the gap between businesses’ applications and the telephony network gives them a wide competitive advantage that has helped companies create a seamless customer experience. They possess a first mover advantage and are growing a very fast pace by winning large customer sets.

The Basics

Twilio is a developer platform to help companies bridge communication gaps across voice and text. The platform is used to deploy communication services, such as video, voice, and chat features, through APIs that Twilio provides.

An API is an acronym for Application Programming Interface.

Simply put, an API is software allowing for two different applications to talk together.

When your Uber arrives and you receive a text message, it is Uber using Twilio’s API to enable that communication in their application.

Instead of building new infrastructure for these features, developers can plug in Twilio’s products to enable communication services. The company also offers other products such as Frontline and Flex, to help companies strengthen their customer experience.

Twilio’s innovation stems from what is called an API-first company. Through their products, developers can seamlessly add different functionalities to their tech stack without having to build it themselves.

In Twilio’s case, developers can plug in a few lines of code to enable communication capabilities within a company. For example, while using Twilio on UberEats, Uber can send out text messages to the consumer’s phone for updates on their order.

To date, Twilio is accessible in over 180 countries, used by 9 million developers. Some of Twilio’s biggest clients include Salesforce, eBay, Shopify, and Airbnb.

Twilio’s business model is surrounded around charging its clients based on a per-minute rate for calls and a per-message rate for text messages. Prices vary by country and region.

In terms of monthly recurring revenue, clients are required to pay a fixed amount every month for a number which can send and receive calls/SMS.

Twilio Active Customer Accounts (Q3 2021)

Source: Twilio Investor Relations

Twilio Gross Profit per Average Customer Accounts in Period (Q3 2021)

Source: Twilio Investor Relations

It All Started with a Prank

In 2008, Jeff Lawson, Evan Cooke, and John Wolthuis started the company Twilio. The company started off by selling basic programmable communication functions for developers, such as dialing, playing and recording. The company started getting traction off a prank that Lawson made.

Around 2008, there was an internet meme going around called “Rickrolling”. Users would click on a link or application for something they were searching for, only to be pranked with the link redirecting to Rick Astley’s song “Never Gonna Give You Up”.

Jeff Lawson built a program with Twilio, solely to “Rickroll” people. This prank started giving Twilio traction in the media and they used that to their advantage.

A few days after the incident, the company released Twilio Voice. The application used an API to make and receive phone calls through the cloud.

Twilio continued to use its momentum and released more products in the following years. In 2010, Twilio released an API-based text messaging application along with an SMS short code in 2011.

With the release of their products, Twilio was able to raise $103 million in venture capital growth funding. They were able to use this funding to expand their business even further and eventually in 2016, the company went public on the NYSE under ticker TWLO. By the end of the first day of trading, the stock grew 92%.

The Communication Gap

The Telephony Network

Something we carry with us every day is the smartphone.

A handheld device that can connect us to practically anyone across the globe, giving us the ability to call and text. To use these communication functions, phones utilize telephony networks. These networks are run by carriers operating on cell towers across a certain region, giving users the ability to connect to their towers to communicate with others. For the average consumer, this is all it takes to connect with one another. Purchase a carrier plan and you are tapped into the telephony network.

For large scale businesses who need more capabilities and custom functions, it is not that simple. Building these networks can be complicated and very expensive.

In addition, every telephony network runs on a plethora of complex protocols. Each communication channel, of voice and text, uses its own dedicated protocol, thus building new infrastructure for companies may not always be worth the cost.

Twilio’s Solution

Now Twilio understands the issue that businesses face as dissolving any communication barrier is extremely important. The key factor that the company realized was that telephony networks use different protocols per communication channel, but the internet uses one for everything, HyperText Transport Protocols (HTTP).

The problem was that the internet still needed to connect to a telephony network to use its capabilities.

So Twilio came up with a solution.

Graphic connecting Twilio to networksSource: Twilio.com

Bridging the Gap Between the Internet and Telephony

Twilio’s APIs is what gives company developers the ability to enable communication channels across their entire business.

Twilio can accomplish this by deploying infrastructure onto the internet, through the cloud, and establishing dedicated connections to carriers across the globe.

Developers can enable communication channels for their business in a matter of seconds.

There is very low friction for developers to get started using the capabilities of Twilio’s platform. Once it is built into the tech stack, the platform is incredibly sticky.

Twlio Around the Globe graphicSource: Twilio.com

The Super Network

Twilio also has another usage with this infrastructure, the Super Network. Through their connections with carriers, they can purchase large blocks of phone numbers to give to their consumers. Once a customer requests a Twilio number, they are given a virtual identity, just as a phone’s identity is through its phone number.

These phone numbers can be used by companies for marketing and business relations. Developers can configure these numbers to send out and receive specific messages and calls to help bolster their customer experience.

Twilio network graphicSource: Twilio.com

The Importance of Customer Experience

Customer experience has become a pillar of many businesses. Sometimes to judge a business against its competitors, looking at how they deal with their customers is an important factor.

This is where Twilio’s business model shines. They have created a bottleneck business as many companies rely on Twilio’s functions to have an upper edge on competitors, to ensure their customer experience is the best it can be.

This is what allows Twilio to keeps its churn low, while also increasing their active users, as many companies rely on the benefits that the platform has to offer.

The Usage Based Business Model

For a typical Software as a Service (SaaS) company, revenues are generated from subscriptions that consumers buy. For Twilio’s case, majority of revenue is generated from what is known as a usage-based model.

Instead of paying a recurring fee to use services, consumers are charged based on how much they use the product. This is beneficial for Twilio as the more consumers they bring in, the more people will use their products. This helps with scalability as a growing customer base translates into growing revenue; they both grow together.

A usage base model also means less friction when implementing into a new tech stack, as companies are not required to pay any upfront costs.

When looking at big companies to even start-ups, Twilio’s product can be implemented seamlessly without any convincing from management because of how the model is structured. It is easy to implement and can be used effectively in a matter of seconds. 

Twilio Revenue ($M) (Q3 2021)


Twilio brought forth the innovation of SMS based APIs, but they continually look to expand their business capabilities while capturing market share. In the last 3 years, Twilio has acquired 3 different companies to become an even bigger omnichannel company.

In 2018, Twilio acquired a company called SendGrid for $2 billion. SendGrid has a very similar business model to Twilio, but they focus on automated emails. This acquisition opened a new scope for Twilio allowing them to expand on their services.

In 2020, Twilio also acquired the company Segment for $3.2 billion. This was a big move for the company, prioritizing something other than API services, customer engagement. Segment’s focus is on customer experience and making a platform to consolidate all those needs.

This acquisition allowed Twilio to not only expand their services offered, but also work towards supplying the demand of exceptional customer experiences through an enhanced platform.

Twilio x Segment GraphicSource; Techcrunch.com

Just recently in May of 2021, Twilio acquired their biggest competitor, Zipwhip, for $850 million.

Zipwhip focused on toll-free messaging services. This was a big acquisition for Twilio as it firstly allowed Twilio to eliminate a major competitor but also helped the company expand their reach on messaging services.


Pricing Power & Margins

Right now, Twilio’s gross margins are low for a software firm.

If the company decides to increase their prices, what is the retention rate of their customers? Will these customers still stay, or will they switch to competitors? These are questions investors should be asking when they look towards the future growth of the Twilio.

Twilio does offer better pricing if you are a large enterprise to keep costs down. But, with prices being so low on each usage case, slight increases will drive costs up for customers moving a lot of volume.

As of right now, the company is focused on grabbing market share, thus their prices are low and the business is not optimized for profitability. Twilio needs to find creative solutions to provide low costs for their customers while also being able to grow revenue and margins over time.

Overall, we believe their plan to under earn in the short term is a smart one. Growth and win of large customers is priority number one.

Twilio Prices DashboardSource: Twilio.com

Partnerships with Businesses

As Twilio partners with companies to provide them with enhanced communication capabilities, it poses the risk if these companies stop using Twilio services to create their own internal solutions. In 2017, both Uber and Facebook decided to reduce their spending on Twilio by developing their own in-house functionalities.

This took a heavy toll on Twilio as both companies were lucrative customers. Twilio should be looking towards creating more innovative products that keep the platform sticky.

Twilio x Uber GraphicSource: Integromat.com

Non-Profitability and Free Cash Flow Negative

Although this is not the main metric Twilio is optimized for, investors should know the business is not currently profitable.

They purposely have kept costs low and are grabbing as much market share as possible.

This is wise as the platform becomes extremely sticky once integrated into an application’s technology stack.


Despite being an innovator, Twilio has introduced competition in their industry.

The concern with this is what competitive advantage does Twilio have over others. To get ahead of one another, it comes down to pricing and experience in terms of ease of implementation. Twilio may have been in the industry for over decade now, but if a company comes in with a cheaper pricing structure, it could affect Twilio’s business. Bitrix24 is a free alternative to Twilio.

If the company continues to expand their business, while keeping it free, it could pose a threat. Twilio should look towards creating more innovative solutions to communication problems while constantly evaluating their pricing structure to stay ahead of the competition.

Twilio’s strategy to become omnichannel is a smart one to keep distance between themselves and competitors in terms of total capabilities of the Twilio platform. This is assisted greatly by mergers and acquisitions (M&A) and we believe this M&A activity is wise and a critical part to the total growth strategy.

Bottom Line

Twilio provides developers the ability to build a fantastic solution to communicate with their customers inside of their applications. They are currently the leader by a wide margin and growing very fast. The platform is incredibly sticky once implemented into a modern technology stack.

The importance of customer experience continues to be on the rise as companies want to connect to their consumers more and Twilio capitalizes on this heavily. UberEat’s delivery texts, AirBnb’s messaging system, and WhatsApp’s chats all wouldn’t be the same if it weren’t for Twilio.

Twilio is still the juggernaut of communication APIs for developers. They will continue to use their bottleneck business to bolster companies’ customer experience while also bringing in year over year growth.

Winning key customers and grabbing market share is priority for the business. Expanding capabilities of the platform through in-house development and acquisitions should strengthen their competitive advantage.

We believe their usage based model provides ease of implementation for developers, however leads to important questions about pricing power and margins in the future.

Twilio has changed the communication game for the better. Their advancements in bridging the gap between businesses and telephony have helped companies expand their customer experience.

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