Twilio Inc. (NYSE: TWLO), a cloud communications platform, is scheduled to announce its second-quarter earnings on August 04, 2020. Wall Street predicts higher quarterly year-on-year revenue at around $368 million, a 34 percent year-over-year increase. Despite higher revenue expectations, the analysts expect TWLO to register a quarterly loss of 8 to 11 cents per share.
The main contributors to its increased revenue are Twilio's $2 billion acquisition of Sendgrid -- a mass email management company -- and its expanding client base. Twilio grew its active customer base by 23 percent in first quarter of 2020, and is expected to improve it further in the second quarter as well.
Also, the company's Twilio Flex growing sales has directly improved its top line. With its ability to providing access to network connections in over 180 countries, Twilio has been able to grow its international revenue as well. International Data Corporation (IDC),a market intelligence company, estimates Total Addressable Market (TAM) for Twilio's programmable communications cloud at $66 billion annually. However, the company has, so far, been able to tap only 2% of it.
The company's Dollar-based net expansion rate, a metric that measures quarterly year-over-year spending by existing customers, has been increasing steadily. This shows that the customers have adopted Twilio's services as an important part of their processes. Moreover, the metric also helps to analyze the revenue growth rate from its existing customers.
Twilio offers subscription and pay-as-you-go pricing methods. Approximately 80% of its revenues are generated through the usage-based pricing method. This pricing option is lucrative for customers as the customers do not have to pay hefty sums in subscription charges. Twilio's gross margins are lower compared to its peers, which is a significant risk factor. Its gross margin as of March 2020 was 53% as compared to Salesforce's 77%, Veeva's 73%, and Paycom's 85%.
Significant competition exists in Cpaas (Communications Platform-as-a-Service) market. Customers developing internal solutions or switching to another service provider pose a threat to its revenue sustainability. Retaining existing customers is inevitable to have reliable and consistent revenue growth. While the company's DBNER statistics are encouraging, the company should put most efforts in retaining its prized customers, for its gross margins are lower than that of its competitors.
Twilio has performed amazingly well during the pandemic, the stock is up almost 200% year to date.
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