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Why analysts are raising their price targets for Twilio shares

Shares of Twilio ( TWLO -1.39% ) flew on Friday. The stock ended the trading day up 13%. The cloud-based communications platform provider’s stock benefited from a flurry of bullish analyst reports about the company.

What got Twilio analysts so excited about this growth stock? The company’s investor presentation on Thursday included a number of upbeat updates from management. Here’s a look at some of the key takeaways from Twilio’s investor presentation and what analysts are saying.

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Twilio is just getting started

Since Twilio’s last Investor Day in 2017, the company’s quarterly revenue has grown from $115 million to more than $401 million. Likewise, the company’s active customers have grown from 49,000 to over 200,000. You would think that investors entering Twilio have now missed most of the company’s underlying growth story. . But the 2020 management presentation indicated otherwise.

Over the next four years, Twilio expects organic year-over-year revenue growth rates to exceed 30% per year. Additionally, over the “long term,” the company expects its non-GAAP gross margin to decline from 56% in the company’s second quarter of 2020 to between 60% and 65%. Finally, management estimates that its non-GAAP operating margin will grow from 2% in the second quarter to more than 20% in four years.

Putting these assumptions together, if Twilio were to grow its revenue at an average rate of 35% per year over the next few years and earn a 20% net margin on that revenue, the company would have an annual operating profit of over $900 million. of about $4.6 billion. of income.

What analysts say

A total of seven analysts have already raised their price target for Twilio stock following the company’s Investor Day presentation. Additionally, the average of these new 12-month targets is $336, which is up 16% from where the stock traded. after his huge run-up on Friday.

Mizuho analyst Siti Panigrahi, who reiterated a buy rating on the stock and maintained a 12-month price target of $315, pointed out that most analysts expected the Twilio’s organic revenue growth is accumulating at a rate of approximately 23% to 25% per year over the next five years. years. Management’s forecasts for growth of more than 30% therefore explode this situation.

cowen Analyst Derrick Wood, who raised his price target on the stock from $310 to $350, said he believed the company had underestimated growth potential, making Twilio stock its first. choice.

A final analyst perspective worth noting is that of Baird analyst William Power. In support of its price target of $340, up from $315 previously, it believes the company is well positioned to continue to benefit from organizations’ ongoing digital transformations.

While investors should be sure to do their own due diligence and should never rely solely on an analyst’s opinion, the confidence of Twilio’s management during his presentation at the investor day certainly improved the long-term outlook for the company.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.