Twilio (NYSE: TWLO) is the industry captain of cloud communications. A raging bull market and a digital economy drove the software company to unchartered territories. After the Twilio stock price rose, 300% investors were keen on buying shares. However, the recent 12% drop has made investors skeptical about whether a TWLO investment is worth it. Thus today’s article will explain TWLO’s 2020 sensation, why the stock took a hit recently, and whether YIG sees any value?
Table of contents 1. Why Twilio's stock price surged 300% 2. Is the Twilio decline temporary? 3. Does YIG see value in a Twilio investment?
How did Twilio become a 2020 spectacle?
The pandemic saw businesses look to the digital space to establish online operations. Communication is the lifeblood of online businesses. Twilio’s cloud software offering was ideal for businesses entering the digital age, and needed strong communication. Consequently, Twilio, like other COVID-19 stocks, saw significant investor backing. However, the shooting cloud software star did not fade out. Because an influx of customers equates to strong earnings. Especially in a climate were money in the economy is circulating to those companies who are helping create a ‘new normal’. Thus, investors continued to back Twilio, with some doubling down, all the way until Q2 2020 financials.
Despite the bodacious expectations from investors, Twilio did not disappoint. TWLO’s customer base jumped 24% to over 200,000. Overall, the customer expansion led to revenue growth of 46% totalling 401 million for Q2 of 2020. From the 200,000 Twilio’s top 10 customers accounted for 15% sales. Indicating that existing customers, and not just newcomers, spent extra on Twilio’s services. Consequently, the Twilio stock priced rose to a 52-week high of $288. However, the TWLO party stopped after Q2 earnings, as investors took profits, which explains the 12% drop over the past few days.
Is TWLO’s stock price declining or taking a rest?
Twilio’s meteoric rise is excellent, and their recent dip is explainable. However, investors looking to enter want to know whether the underlying sentiment is changing from bullish to bearish. Investors can uncover the direction of TWLO by looking at the stock price activity, options chains, and insider/institutional buying and selling.
After investors sold off after Q2 earnings, TWLO fell below the first level of support, which was $263. Twilio now trades between the $246-250 range, which is the second level support. Considering TWLO is already down in pre-market, we could see the cloud software giant break the second level of support. YIG would like to point out that if TWLO does fall below $246, the dip would activate significant selling pressure. Put option activity is losing momentum while the number of TWLO calls being purchased for September and beyond is rising. Ultimately, suggesting the bearish sentiment is fading. To add insult to injury, it will be hard for Twilio to release an announcement that tops strong earnings growth. Thus, short term investors are likely to continue the sell as Twilio becomes a quiet stock. Overall Twilio holds a bearish sentiment for the short-term (opinion not advice).
Does YIG see value at Twilio’s current stock price?
Before I begin, I am obliged to remind our viewers that this is no financial advice but rather investment commentary from extensive research
Short answer: A long-term investment holds significant potential (opinion not advice).
Despite the bearish direction at the moment, Twilio is poised for upside potential in the long-term. The recent decline is similar to that of people at a party taking a rest and getting refreshments.
Cloud software and strong digital communications is not a fad. While Twilio’s insane growth might seem unrealistic, it is important to note that the digital world is a significant part of the ‘new normal’. In saying that, the rest of TWLO’s 2020 earnings will likely not live up to its impressive Q2 records. However, in the long-term digital communications will only continue to climb. Especially as the customer experience industry is expected to grow about 18% a year through to 2027, in which time annual spending would top $23 billion if those growth rates transpire.
Moreover, institutions have been buying into Twilio in recent months. For example, Rafferty Asset Management, TimesSquare Capital, and Banco de Sabadell bought 1,207,000, 13,336,000, and 415,000 worth of stock, respectively, in Q2 2020. Overall, institutions and hedge funds own 86.74% of Twilio, suggesting there is smart ‘money’ behind the company.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.