TWLO Swot Analysis - Financhill

TWLO Swot Analysis

TWLO Swot Analysis: Investing is never certain, but the more research you can do, the more informed your decisions can be.

Software developers are a perfect example.  While they work within the same industry and may even serve the same companies, the manner in which they do so can be profoundly different.

Their approaches may vary as well as their focus. You need to know which horse you are betting on, so to speak. Let’s use the Twilio business model as an example.

Twilio Business Model

Communications within software development is a narrow field. Barriers to innovation are high. Twilio (TWLO) is working to change that.

The company serves software developers by helping them build and scale communications within the applications they develop. Twilio does this through a cloud communications platform.

There are three layers.

#1: An engagement cloud that covers account security

#2: A programmable communications cloud that lets its users integrate communications capabilities into their applications.

#3: The final component is something Twilio calls the Super Network. This software layer lets client applications interact with connected devices around the world and analyze those communications for cost effectiveness as well as quality.

To give you an idea of what Twilio may look like in action, this company helps its clients do everything from enable two-factor authentication to send message diners when their tables are ready.

At the end of fiscal 2018, Twilio had more than 64,000 active customers – but it has been growing rapidly. In July, The Street reported that the company’s number of active users had climbed to almost 162,000.

Twilio’s swell in growth may be attributed to its push for growth. The company acquired an email API platform company called SendGrid in early 2019.

The idea was that by adding an email channel to its communications offerings, Twilio could improve its functionality and make it easier for its clients to communicate. The acquisition brought the company’s number of communication channels to four:

  • Messaging,
  • Video,
  • Voice, and
  • Email.

Strengths and Opportunities

The gains from Twilio’s $3 billion Send Grid acquisition are still developing. “It’s very early; we’ve only owned the company for five months. Opportunities to cross-sell and things of that nature are just now starting to take hold,” says Twilio CFO Khozema Shipchandler. “We’re just now seeing what we can do from a SendGrid perspective.”

And, really, the SendGrid acquisition is only the tip of the iceberg.

Twilio [NYSE: TWLO] has a lot going on under the surface too. In the first half of the year, the company’s annualized run rate had topped $1 billion – a fair bit of progress for a company that had its IPO just over three years ago – and it had several products under development. Almost half of its workforce is committed to research and development.

One of them, called Trust Onboard, is an Internet of Things product.

It is a little technical, but here’s how it works. Trust Onboard is basically a feature that assigns wireless SIM cards two authentication certificates. This way, programmers do not have to rely upon pre-shared keys, like a password or API token.

Instead, the Twilio SIM card with Trust Onboard acts as its own key, so user devices are automatically recognized as safe, communications can be kept secure, and software integrity is ensured.

The company also released Twilio for Salesforce. This add-on lets Twilio offer customized communications within the Salesforce platform, facilitating more customized alerts and providing a way to improve workflows within the existing CRM.

Then, there are Twilio’s efforts against robo calling.

The company is actually working to combat robo calls by adding verifications and leveraging artificial intelligence to predict which calls are pre-recorded. Its efforts also include establishing a database that it will share with regulators to prevent this type of spam calls.

Weaknesses and Threats

Twilio [NYSE: TWLO] does have its weaknesses.

Keep in mind that this company still deals in “old technology.” Voice calls and SMS messages are at Twilio’s cornerstone, and they are not free. In order to offer these channels of communication, the company has to pay fees to network service providers and it is eroding its profit margins.

There are also the company’s strategies to consider. This may be an asset-light company but it is acquisition-heavy and that makes it capital intensive in a way that most asset-light companies are not.

Twilio bought SendGrid, but that was only its most recent acquisition. A few months before that deal, Twilio bought Ytica. Before that, it was Beepsend SMS, Kurento, and Authy. While acquiring technology and talent is a long-standing tradition within the tech industry, it comes at a price.

Twilio [NYSE: TWLO] might sound like a Software-as-a-Service (SaaS) company but it really isn’t. Its customers pay for their specific usage as opposed to a traditional SaaS model that lets clients access an infrastructure for a subscription fee.

Finally, one of the biggest criticisms against Twilio is that its growth is not organic. The exponential increase in active accounts is owed to strategic acquisitions.

Should You Invest in Twilio?

Rumor has it that Twilio has been an attractive acquisition target.

Outlets like RealMoney have posited that Salesforce, which was an early investor in Twilio, may attempt to purchase the company while other analysts have discussed that Amazon could get involved.

The online shopping and content giant provides the infrastructure upon which Twilio is built and Microsoft did something similar when it acquired Github.

For the right price, Twilio could help a more established company catapult itself to the forefront of the cloud computing space – as long as it could be bought for the right price.

As Twilio [NYSE: TWLO] grows and gobbles up smaller companies, and its share price occasionally soars, acquisition may be less eminent, but it could be a good investment, if you believe that the company has the chops to continue on.

To be successful, Twilio will need to keep attracting partners and manage its rapid growth effectively. Not every young company does this well. There is definitely risk here. The biggest thing aspect to consider is the price at which you can open a position, how long you are willing to hold it, and the return you expect to receive.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.

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