After a Brutal Q3, Has This Software Stock Bottomed?

Investors are asking… [View in browser]( BROUGHT TO YOU BY: Proprietary Data Insights Financial Pros Prepackaged Software Searches in the Last Month Rank Name Searches #1 Twilio 2,302 #2 ZoomInfo Technologies 274 #3 Manhattan Associates 29 #4 Ceridian HCM Holding 19 #5 Ooma 12 #ad [Understand the headlines that dominate the markets]( Brought to you by [1440]( [News without motives]( If you wish all news could be as no-nonsense as this, you'll want to check out a nifty little newsletter called 1440. It's a daily digest of all the most important info in culture, science, sports, politics, business, and everything in between — and it's the fastest way to an informed and impartial point-of-view. [Sign up for 1440 now and get your first five-minute read this minute. It's completely free -- no catches, no nonsense, and absolutely no BS.]( Technology After a Brutal Q3, Has This Software Stock Bottomed? Although The Spill will be off for Thanksgiving and Black Friday… Because we ARE those people who stand in line at 6 a.m… We wanted to use today to cover a stock that’s too popular for its own good. Investors hammered growth stocks this earnings season. One that’s fared the worst is Twilio (TWLO). The company’s share price flopped more than 80% year to date. As we started bottom-fishing for prepackaged software stocks, our proprietary Trackstar sentiment indicator picked up on TWLO, which financial pros have searched nearly 10x as much as they have its nearest competitor. This stock also gets more attention than Airbnb, Target, and Beyond Meat. Do investors view TWLO as a buy after its big earnings drop, or is there more selling to come? Results of our investigation below. Twilio’s Business Twilio offers a global cloud-based communications platform, enabling developers to build, scale, and operate customer engagement with software applications. Some of its biggest customers include Airbnb, eBay, IBM, and Shopify. The company delivers Communications Platform as a Service (CPaaS), including SMS marketing and commerce communications. Additionally, it offers a cloud-based contact center platform. If you’ve ever booked an Airbnb and received a text notification from that company, it came via Twilio. TWLO has more than 280K active customer accounts as of September 2022. Investors can feel comfortable knowing that its top 10 customer accounts represent only 13% of its revenues. But the firm’s messaging platform accounts for 64% of its total revenue. Earlier this month, the firm reported Q3 earnings of $983 million, up over 33% year over year. [revenue] Source: Twilio However, management guided significantly lower for the next quarter, raising concerns that the company’s growth could be slowing. Financials [Financials] Source: Stock Analysis TWLO has a stable balance sheet, with $4.2 billion in cash and $1.25 billion in debt. Its current ratio of 5.7x proves it has ample liquidity to deal with its short-term liabilities. Its total assets rose from $449 million in 2017 to $12.99 billion in 2021. But the firm’s operating cash flow is negative at -$234 million, which is a major drag. The company has grown substantially over the years. Revenues jumped from $399 million in 2017 to $2.8 billion in 2021. And TWLO has generated $3.6 billion in revenues over the last 12 months. While those figures are impressive, investors are concerned that the company’s growth will notably decline following the weak guidance it gave after its Q3 earnings call. Valuation [Valuation] Source: Seeking Alpha TWLO trades at a price-to-sales ratio of 2.2x, notably lower than its peers ZoomInfo (ZI) at 10.7x, Manhattan Associates (MANH) at 10.2x, and Ceridian HCM Holding (CDAY) at 8.2x. However, OOMA (OOMA) is a bit cheaper at 1.7x. Historically, TWLO has traded at a price-to-book ratio of 7.7x but is now trading at 0.8x. Its competitors are trading significantly higher, with ZI at 5x, CDAY at 4.7x, MANH at 37.8x, and OOMA at 6.4x. But like CDAY and OOMA, TWLO is not profitable. Meanwhile, ZI trades at a P/E GAAP ratio of 62.6x and MANH at 68.7x. Twilio has announced it will cut its workforce by 11%, slow hiring, and reduce some of its real estate expenses. These cost-saving strategies are management’s attempt to reach profitability sooner. Profitability [Profit] Source: Seeking Alpha TWLO has a gross profit margin of 47.4%, higher than CDAY at 43.6%, but lagging behind its other peers. For example, ZI is at 87%, MANH 52.7%, and OOMA 62.5%. One concern investors have is Twilio’s messaging business’ dependence on carrier fees that telecom companies set. Its software business offers a higher margin, but it’s a small segment of the company’s revenues. Twilio’s EBIT margin of -30.1% is dismal. Its competitors are doing notably better. For example, ZI’s is 16%, MANH’s is 18.2%, CDAY’s is -0.34%, and OOMA’s is -1.4%. Twilio’s net income margin of -36% is brutal compared to ZI at 18.1%, CDAY at -6.5%, MANH at 15%, and OOMA at -0.42%. Growth [Growth] Source: Seeking Alpha TWLO has grown revenues by 43% YoY, but its peers have also had double-digit revenue growth, ZI at 53.2%, MANH at 15.8%, CDAY at 23.5%, and OOMA at 12.6%. Investors are concerned about TWLO because the firm is projecting its Q4 growth to be 19%. Meanwhile, it’s slashed its longer-term growth target from 30% to 15 to 25%. [What Financial Professionals Are Researching]( Every quarter, we compile data from millions of retail and pro stock investors’ searches across our vast network of financial publishers. We reserve these timely, actionable insights exclusively for our newsletter subscribers. This info can help you decide what to do in your portfolio – so you can protect the money you have and generate bigger gains. [Click here now to download the FREE TrackstarIQ Q3 2022 Report.]( Our Opinion 2/10 TWLO offers excellent products and services to large-scale businesses. But the company’s management has been running the company into the ground and burning cash. Shares are down 82% YTD. Meanwhile, its earnings per share are down 63% this year. And now it projects growth to slow. As tempting as it looks, TWLO is still grossly overvalued and not investable, despite the haircut it got. News & Insights Just Spilled - Can This 100-Year-Old Company Change With the Times? - [3 Investment Trends for 2023 & Beyond]( - Thanks to Trump, This Stock Could Soar - Two Ways to Win with This ETF [We want to hear from you! Let us know your thoughts by clicking here]( # [submit to reddit]( [submit to reddit]( [submit to reddit]( [submit to reddit]( To ensure delivery of all emails, [allow us on your list](. Update your email preferences or unsubscribe [here](. View our privacy policy [here](#). 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