Twilio Surges to All-Time Highs

NYC Contact Tracing Initiative##

Twilio has surged to all-time highs after announcing today that it will power the communications for New York City’s COVID-19 contact tracing initiative. The city is planning to deploy a cloud-based contact center on Twilio Flex and leverage Twilio SMS and Voice as key parts of the city’s COVID-19 tracing program.

More specifically, Twilio has built an omnichannel contact center using Twilio Flex to call, message or email COVID-19 patients, educate them on the virus, and identify their close contacts through self-reporting. The platform also provides messaging-based alerts using Twilio Voice, SMS, email or WhatsApp that prompt patients to fill out secure surveys on their symptoms.

Refresher on Twilio##

As a quick refresher: Twilio is a cloud communication platform that enables developers to embed communications such as phone, VoIP, and messaging into their web, desktop, and mobile software applications.

We first invested clients in TWLO in August 2019, and the stock had a volatile few quarters preceding COVID-19. We held through the volatility, however, and stuck to our long-term thesis on its transformation of communications workflows.

In the nearer term, we believe Twilio can see its demand rise through and post the COVID-19 pandemic, as it offers tools for companies to move from on-premise call centers to cloud-based call centers that allow customer service agents to work remotely.

Our Latest View##

After blowout Q1 results mitigated many concerns from bearish investors on the impact of COVID-19 on Twilio's customer base, the company continues to step up its growth initiatives and play "offense" while other communications companies are playing defense.

To be clear, this stock is one of the most volatile and optically expensive (on an EV/sales basis) in our portfolio today. It does not "screen cheap" for prospective investors, and its execution historically has not been perfect (we saw billing issues in 2H 2019, for example, driving much of the volatility pre COVID-19, in our view). But therein lies the continued opportunity for us as long-term investors.

We believe investors are still under-appreciating the longevity of top-line growth and margin leverage Twilio will generate over the next 3-5 years. At $200/share today, the risk/reward is marginally less attractive, but our estimates have improved as execution has progressed. We remain bullish on this company.