Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Is Twilio (TWLO) making money?

No company seems to have benefited more from coronavirus than Twilio Inc. (NYSE: TWLO).

Twilio’s share value tripled in 2020. Twilio (TWLO) shares were trading at $103.15 on 2 January 2020 and $306.10 on 23 October 2020 and $286.29 on 27 October 2020.

Mr. Market loves Twilio because it makes digital tools that make remote work easier and more secure. For instance, Twilio Frontline is a proposed mobile app that allows “desk-less employees” to connect with customers from any internet connection.

Twilio is beta-testing Frontline. Twilio claims employees can use texting, WhatsApp, and other social media solutions to connect to customers and management through Frontline.

Can Twilio make money from APIs?

Twilio is a cloud communications platform that uses application programming interfaces (API) to connect businesses with customers and employees. An API is a computing interface that connects different platforms or systems.

For instance, a company could use a Twilio API to connect its database to employees’ WhatsApp accounts. WhatsApp is a popular encrypted messaging service owned by Facebook (NASDAQ: FB).

Twilio builds APIs for specific businesses such as healthcare. A Twilio API can connect employees with a company’s chatbots, phone system, email, and text messaging system. Salespeople could use Twilio to access all of a company’s sales material and data, for instance.

Can Twilio cash in on Coronavirus?

Interest in Twilio is high because of coronavirus. For instance, 35.4% of American workers told the US Census Bureau they were working at home in May 2020.

Moreover, many businesses are adopting new business models that require a high-level of digital connectivity. Those solutions include contactless delivery and online ordering for many products.

Other businesses are adding large numbers of new employees who are remote workers. Those businesses will need direct connections to those workers that Twilio (TWLO) can provide.

What Does Twilio Provide?

Twilio (TWLO) claims its platform powers over 190,000 brands and supports over million developers worldwide. Twilio claims to offer best-in-class APIs and serverless business solutions can deploy in minutes.

Two of Twilio’s specialties are relationship management and clienteling. Twilio could improve relationship management by offering direct lines of communications with customers.

Twilio allows remote working employees to send sales information directly to customers. One use of this is mobile customer relationship management (CRM). Twilio offers employees access to CRM software on their firms.

One solution Twilio is offering is an app that serves as a CRM system in a box. Ideally, employees will download the Twilio app touch it and have access to the company’s CRM.

Is Twilio Making Money?

Twilio (TWLO) offers the familiar cloud stock story of incredible revenue growth while losing money.

For example, Stockrow estimates Twilio’s revenue growth rate for the quarter ending on 30 June 2020 at 45.74%. Twilio’s revenue growth rate was 56.4% in the quarter ending on 31 March 2020 and 62.12% in the Quarter ending on 31 December 2020.

Twilo reported an operating loss of -$102.64 million on 30 June 2020. That operating loss grew from -$92.70 million on 31 March 2020 and -$93.80 million on 31 December 2019.

However, Twilio’s quarterly revenues grew from $331.22 million on 31 December 2019 to $364.87 million on 31 March 2020 and $400.85 million on 30 June 2020. Meanwhile, Twilio’s quarterly gross profit grew from $174.69 million on 31 December 2019 to $193.53 million on 31 March 2020 and $209.13 million on 30 March 2020.

Twilio’s Tiny Cash Flow

Twilio’s tiny cash flow casts doubt on the idea cloud platforms can make money. For instance, Twilio’s quarterly operating cash flow went from $12.02 million on 31 December 2019 to $15.54 million on March 31, 2020, and -$1.62 million on 30 June 2020.

However, Twilio’s quarterly ending cash flow grew from -$76.94 million on 31 December 2019 to $345.52 million on 31 March 2020 to $130.18 million on June 30, 2020.

Unfortunately, much of that cash flow could be borrowed money. Notably, Twilio’s quarterly financing cash flow grew from $14.12 million on 31 December 2020 to $4.6 million on 31 March 2020 to $58.69 million on 30 June 2020.

Twilio had some value in the form of $1.903 billion in cash and short-term investments on 30 June 2020. Twilio had total assets of $5.291 billion on 30 June 2020.

Twilio and the Cloud Bubble

Thus, Twilio’s platform makes little money yet its stock price, its stock price is soaring. I think irrational exuberance driven by the hysteria generated by the coronavirus epidemic is pushing Twilio’s stock price higher.

Coronavirus fears are partially responsible for a bubble in Twilio and other cloud-based stocks such as Snowflake Inc. (NYSE: SNOW). Snowflake’s shares began trading at $253.93 on 16 September 2020 and rose to $297.09 on 22 October 2020. Snowflake’s share price fell to $265.02 on 23 October 2020.

Snowflake is a cloud-based data warehousing company that is attracting a lot of attention. One reason Snowflake is so popular is that Berkshire Hathaway (NYSE: BRK.B) and Salesforce (CRM) own large stakes in Snowflake.

The Cloud Bubble will Collapse

Berkshire owns around 6.1 million Snowflake shares or 15.2% of Snowflake, Business Insider estimates. Additionally, Salesforce owns around 9.1% of Snowflake (4.253.6 million shares).

However, no financial information is available about Snowflake because it held its IPO last month. Yet, Mr. Market paid $265.02 for its shares on 23 October 2020 and $266.77 on 27 March 2020.

I think Twilio (TWLO) shows we are in a dangerous cloud bubble that could collapse. I believe all investors need to avoid cloud-services stocks such as Snowflake and Twilio because those companies make no money.