TWILIO (Enterprise Value : $9.2b, Market Cap : 13.352b)
TTM Revenue : $3.4b
YoY Revenue Growth : 33% (41% if include acquisitions)
Gross Profit : $1.73b
Gross Profit Margin : 51%
Enterprise Value / Revenue : 2.7x (about 4x for Market Cap / Revenue)
Enterprise Value / Gross Profit : 5.4x
SG&A / Revenue : 50% (has roughly been 40%-50% since 2018)
Debt : $1.222b
Cash & Equivalents : $5.357b
DBNER : 123% (down from 139% in Q4, 2020, due to more demand for low margin API products over high margin SaaS offerings like Twilio Flex)
FIVE9 (Enterprise Value : $7.54b, Market Cap : 7.188b)
TTM Revenue : $0.700b (guiding to full 2022 Rev of $0.780 - $0.785b)
YoY Revenue Growth : 32%
Gross Profit : $0.376b
Gross Profit Margin : 53%
Enterprise Value / Revenue : 10.7x
Enterprise Value / Gross Profit : 20x
SG&A / Revenue : $0.328b (46.7% of Revenue, fairly consistent since 2018)
Debt : $0.825b
Cash & Equivalents : $0.465b (not great to see cash lower than debt)
DBRR : 118% (dollar based retention rate)
From a pure valuation & risk-reward perspective, Twilio looks better than Five9 at a mere 4x revenue valuation. This can definitely get cheaper if growth slows further to the teens and gross margins erode further on the back of higher telco charges (Twilio pays a portion of revenue from API to telco networks on which it piggybacks), but assuming a 2x revenue multiple, Twilio will be trading at $6b market cap with over $3b in cash. I struggle to see it staying at that level for long even if growth slows in this macro environment.
Twilio has a similar gross margin to Five9 with potential upside if they sell more seats on Twilio Flex and spin up more SaaS offerings on top of their low margin API product.
Twilio’s balance sheet is also far superior to Five9s. With $5.357b in cash equivalents and raw $3.5b in cash (see latest Q2 , 2022 filing), they can adequately fund Sales & Marketing 2 fold using just cash in the bank.
Five9’s cash can barely cover SG&A, which probably explains the debt load. In this macro environment, i’d pick Twilio over Five9.
Growth rates are similar with Twilio having more upside from growth in Twilio Flex and growth from the companies it acquired (ZipWhip etc).
Conclusion
If I had to pick a solid growth stock to add to my portfolio, Twilio is one. Relative to Five9 (a comparable peer, it is a much cheaper company with a more robust balance sheet). Valuation is low enough for there to be less downside and arguably a lot of upside in 10 years time.
Assuming Twilio keeps growing revenue at 15% a year and Revenue multiple stays at 4x, Twilio will make $13b in revenue in 2032 and be worth $52b assuming a 4x Revenue Multiple - lower than what Salesforce commands today. Based on today’s $13b valuation, this looks like a 4x return in 10 years with potential for more upside should multiples and growth expands.
Note : I am not a financial advisor and this is my personal portfolio. Do not blindly follow and do your due diligence. You can lose money by investing in the stock market. All my writing is opinion and NOT advice.
I have been wrong on some firms. Peloton for example didn’t grow as intended and management tore through the balance sheet with little discipline. This is par for the course in investing. You win some, you lose some. Had you blindly followed my work on Peloton, you’d have lost over 80% of your capital. Proceed with caution.