Digitalization has been a buzzword in 2021. The natural necessities (and constraints) surrounding the COVID-19 pandemic made it a priority and a must-have for us to function and progress collectively as a human race. There is no going back on digitalization, on the contrary, the growth in this space is going to be phenomenally exponential.
Remote work which is part of this digitalization trend is also here to stay. For most companies to compete, they must be able to operate in a remote world. Salesforce calls this the new ‘all-digital world’. Research from the International Data Corporation (IDC) forecasts that there will be a $10 trillion spent on global digital transformation by 2024. That’s a lot of money. Salesforce is at the center of this transformation and the company predicts in the following years about 57% of all spending on technology will be on digital transformations. Companies will spend about $1 trillion alone on work initiatives, like creating digital headquarters and enabling remote work.
While most growth stocks are on the retreat since the beginning of the year, some of them provide great buying opportunities. One of the stocks that I follow is Twilio. We have written about Twilio before. At that time, the price was around $240 and I thought it was a good buy around that area. Since then the price has really nosedived today to around $182. From last year’s high of $457 to $182, the price has fallen around 60%.
Since posting a significant low today, the price has smartly recovered to $190 as I write this. If it was a buy at $240, all things being equal, it should be a better buy now.
What is new at Twilio? A month ago, Twilio launched Twilio Ventures. Through this vehicle, the company created a $50 mln fund to invest in companies building next-generation tools for customer engagement. I think it is a smart move.
The fund has already deployed roughly $13 mln spread over five investments. By investing in these early-stage rounds, not only can Twilio have equity in these companies but also glean insights for making future strategic acquisitions.
Twilio has had a successful track record in making strategic acquisitions. Some of them are big-ticket items and they include SendGrid, Signal, Segment, Zipwhip, and a few others. The total cost of acquiring all of them should be something north of $10 bio.
In the last five years, we have seen tremendous growth in their revenues mainly on the back of these acquisitions but recently the stock prices have been punished sharply due to a slow down in organic growth.
Undoubtedly, Twilio remains the leading company in the CPaaS industry. At current prices, out of 30 analysts, 27 have a buy recommendation on Twilio while 3 are on hold. The average price target is $433.
With the interest rate scenario has changed in the US, growth companies are getting punished severely. Twilio is one of them but everything becomes attractive at a certain price and should provide value. Twilio is at such a stage especially when they are in an industry which should have a growth rate of around 34% for the next five years.
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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. Currently, he is a co-founder of a new hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.