It is only a week ago that I wrote a lengthy piece on Tanla Platforms. I also made some references to Twilio in that report. Many a time, I have made references to Twilio when my actual financial interest is only in Tanla. I do not own any Twilio shares as yet but it is a company, that I have been following ever since I invested in Tanla.
There are two reasons for that. In the CPaaS space, Twillio is the ultimate leader. In the last few years, as Twilio prices were going gangbusters, I always had the fear that Twilio could be hit hard in a bear market. I alluded to that in my past writings.
In a bear market, the growth stocks get hit hard the most especially if you are highly leveraged and you are not cash flow positive. Twilio is leveraged and is not yet making profits at an operational level (in fact, it has not made any profit since its IPO in 2016), whereas Tanla has zero debt and is a good profit-making company with sufficient reserves waiting to expand its businesses to many countries outside India. What went wrong for Twillio was also that their interest burden could have increased substantially with the sharp rise in interest rates since March 2022.
Tanla also betters Twilio on the equity front as it continues to see equity reduction in the last two years, and Twilio’s equity base continues to rise (see below equity stats). With rising debt and equity, Twilio has been in a tight spot with current macroeconomic realities.
Tanla’s founder & his family owns 43.74% of the equity, while Twilio’s founder owns around a small fraction. Having said all that, you shouldn’t throw the baby with the bathwater.
I think on a valuation basis Twilio is a terrific investment at current levels. The stock trades at an enterprise value to sales (EV/S) of 3.3 based on 2022 estimated sales. This is the cheapest Twilio has ever traded as a public company. Even during the market crash of March 2020, Twilio only traded for an EV/S of 7.8. The forward valuation based on 2023 estimated sales is at a ridiculous 2.6. This is a company that has traded as high as 25 EV/sales in the past and has rarely traded for long anything less than 10 times sales.
I think it is still one of the best technologies companies out of the mid-cap sector in the US markets. Not only is it in one of the highest growth sectors but it also has one of the largest moats in the industry.
Prices are no doubt down by over 70% similar to Tanla. If the macro environment really doesn’t deteriorate think Twilio should trade at much higher multiples in the coming year.
Meanwhile, as I opined in my last report on Tanla, they have announced a move to go ahead with a buyback. The details of which will be announced on 08 Sep 2022. Ever since I got involved with Tanla this is the third continuous buyback in the last three years.
The only other stock that springs to my mind that does continuous buybacks every year is Apple. As investors, many are anxious if it will be a tender offer or an open offer. Just for those who have been trash-talking about Tanla, I just want to assure you that I believe Tanla will be following one of the most conservative and stringent forms of corporate governance in getting this done.
Equity stats
Twilio
Non-GAAP weighted-average shares are used to compute Non-GAAP net income per share attributable to common stockholders, diluted
Apr 2020 – 148 Million
Jun 2022 – 182 Million (23% increase since Apr 2020)
Tanla
Apr 2020 – 152 Million
Jun 2022 – 136 Million (11% reduced since Apr 2020)
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.