Financial News Twilio (TWLO) Report, Income Millionaire Insider Update
Welcome to the August 4th, 2019 Income Millionaire Insider update.
Let’s move on to Twilio, the ticker is TWLO. The more I learn about this company, the more I like it. In the most basic terms, Twilio is a cloud based, customer engagement platform allowing voice, text messaging and video to run on a business’s website or mobile app is various ways to connect back and forth with their customers.
Hundreds of companies are already using Twilio’s platform. To give you a few examples, DocuSign uses it to increase their security and protect the customer, the account holder by texting the account holder a code after they log in to their account. That code then needs to be entered by the customer and authenticated by Twilio before the user can gain access to their account and their documents.
Coca Cola uses Twilio to get its vending machines fixed as soon as possible. When the vending machine itself senses a malfunction through the use of artificial intelligence, the machine contacts people in the field who know how to fix the vending machine’s problem, so it’s not out of service for very long.
Pay by Phone is a popular mobile application allowing people to pay for parking by entering in the application a parking area code and their license plate number to pay for parking from their account that’s already set up and linked to their credit card.
Lyft and Uber, the ride sharing companies use it to allow the car driver and the passenger to text and talk securely by linking both personal phone numbers to a randomly created phone number, so neither party can ever directly contact each other and their privacy stays intact.
The platform is amazing and has so many uses.
Looking at the growth in the industry in general. These communications platforms have grown from being a $400 million business in 2015, to being an estimated $8.1 billion business by the end of this year.
Twilio has accelerating growth in revenues and that growth is forecast to continue through the end of the year. Here’s the bad news. Twilio isn’t yet a profitable company. Check out the Net Loss attributable to common stockholders line item in this financial report, and you can see in these just released financials how year over year 2018 to 2019, they’re losing more money. Here’s a graphic going out to October of last year showing the historical decline.
One of the reasons Twilio isn’t profitable right now is it’s spending a lot of money to grow and improve their business, which some day in theory may slow down and help Twilio to become more profitable. Twilio is rapidly gaining new customers, which will also help it become profitable.
The Chief Financial Officer did say in the earnings call held this past week, that he, and I quote, “expects to return to a modest level of non-GAAP profitability in Q4” meaning by the end of this year he expects the company to be profitable.
The trade to take advantage of the forecasted growth is pretty simple. Buy the longest dated, 20 Delta Call option you can find. The trade calls for buying 20 Delta Call options with 500 days to expiration, because over the last two years the trade won twice and never lost. Can it possibly lose this time? Sure. The trade has a total return of 3,769% and an average return of 1,826% over the last two years. The January 15, 2021 expiration with about 530 days to expiration is exactly what we’re looking for.
Here’s the trade’s exit strategy. If the trade is making money, it can be exited sometime after being held for 365 days, but should certainly be sold before the expiration date. Assuming the trade is making money, exiting the trade at some point after the 365 day mark takes the profits of the table, and taxes the trader at the capital gains tax rate instead of the ordinary income rate. If the trade is losing money and still has about 4 months or more until expiration…assuming the stock market x-ray and company fundamentals are the same, the trade could be held…the trader needs to decide what’s best for them. If the trade is losing money and fairly close to the expiration date, maybe the trader cuts their losses and sells out.
Please remember this information can change quickly, and the prices I’m showing you now may likely be different when you look at them, so reach out to me if you have any questions.
Congratulations on getting our August 4th, 2019 edition of the Income Millionaire Insider update. These are our thoughts, but this is not investment advice, so please get professional help if you need it. Make good deals and we’ll see you next week.