Twilio Shares Surge 98% YTD As Emerging Use Cases Drive Increased Demand

Shares of Twilio (TWLO) have advanced 98% YTD. Earlier this week, the stock traded to a new all-time high of $209.94. During the Covid-19 crisis, Twilio has emerged as a leading provider of the underlying infrastructure needed to power increased digital engagement.

Twilio in early May delivered an excellent Q1 earnings report, with demand for its cloud-based communications platform coming from organizations across a variety of verticals. Total revenue jumped 57% to $364.9 million, beating the consensus estimate by nearly 10%. The company in Q1 added 11,000+ net new customers, bringing the total count to more than 190,000, up 23% year over year.

Twilio started to see a big increase in demand in the middle of March. There was a 25% increase in average daily sign-ups for the period from March 18 through April 30 compared to the first 11 weeks of Q1. While demand from new customers was strong, current customers were also active, purchasing additional products for video, voice and email. The dollar-based net expansion rate in Q1 surged to 143% (135% ex-SendGrid) from 124% in Q4.

On the Q1 earnings call, Twilio CEO Jeff Lawson said the company was, in many ways, built for major crisis events. Twilio’s messaging, email, voice and video solutions have enabled many parts of the economy to keep working even as people sheltered at home.

Twilio’s diverse customer base—made up of everything from startups and government agencies to Fortune 500 companies—has served the company well during this time, with some segments outperforming, making up for those under pressure.

Twilio has seen elevated use cases in education, healthcare and retail, offsetting downside exposure to impacted verticals —such as ridesharing, hospitality and travel. Overall, less than 10% of total revenue comes from verticals under pressure. 

Management called out six emerging use cases for Twilio’s platform during the pandemic—remote contact centers, self-service, contactless delivery, telehealth, distance learning and mass notification. 

Telehealth is a new growth area for Twilio. With Covid-19, demand for virtual healthcare has taken off. Twilio recently worked with Epic Systems, a vendor that supports the health records of 250 million people, to help develop a telehealth platform powered by the company’s Programmable Video offering. The solution allows providers to launch video visits with patients, review patient histories and update clinical documentation directly within Epic.

Twilio in the middle of May announced that its Programmable Video product will power Zocdoc’s new telehealth video solution. Any provider can sign up to use Zocdoc’s Video Service to facilitate all of their virtual appointments.

Twilio has seen an increase of 850% in peak concurrent participants on its video products and an increase of more than 500% in daily video minutes compared to pre-February levels. Usage of Twilio’s platform across its healthcare customer base has jumped by more than 90% since the February averages before the pandemic.

One of the biggest opportunities for Twilio involves moving call centers to the cloud from on-premises environments. This will be a significant demand driver for Twilio’s newer Flex product, a fully programmable cloud contact center platform. Nearly every contact center today needs to be reconfigured to support distributed workforces and increased usage, says Lawson. With just 17% of all call center seats in the cloud prior to the pandemic, there’s lots of upside.

Flex, targeted at enterprises with 1,000+ call center seats, stands out because the product offers customers quick installations and reduced operating costs. In Q1, Twilio worked with the city of Pittsburgh to enable 311 operators to continue to perform their jobs without having to go into on-premises call centers. Agents were working from home on Flex in just four days.

Last week, Twilio announced that its platform would power New York City’s contact tracing initiative. The city is planning to deploy a cloud-based contact center on Flex, while using Twilio SMS and Voice as key parts of the tracing program. Twilio’s omnichannel contact center built on the Flex platform can be used to call, message or email Covid-19 patients. The platform also provides messaging-based alerts using Twilio Voice, SMS, email or WhatsApp that prompt patients to fill out secure surveys about their symptoms.

While withdrawing its 2020 guidance because of uncertainty about the macro environment in the second half, Twilio offered a bullish Q2 outlook, with revenue expected to come in at $365 million to $370 million (growth of 33% to 35%), well above the consensus of $337.7 million. Twilio management said it would continue to invest for growth, with a focus on expanding its sales force across the enterprise sector, international markets and Flex specifically.

As Twilio’s stock price has risen, some Wall Street firms have boosted their price targets. This week, RBC Capital lifted its target to $240 from $180, citing greater clarity on the positive demand trends seen in Q1, along with the company’s opportunities over the longer-term. The firm notes that Twilio is leveraged to the digital transformation initiatives across multiple verticals and business functions. 

Needham upped its target to $225 from $170, saying the company’s NYC contact tracing initiative presents a meaningful incremental opportunity as both a major win for Flex and a likely benchmark/reference account for additional contact center tracing wins with other cities or municipalities. Needham has incremental conviction on the increased relevance of Twilio’s digital platform in a post-pandemic world.

Today, Cowen took its target up to $230 from $180, saying the company is benefiting from new opportunities across telehealth, remote work and distance learning.