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What's happening with Twilio (TWLO)? And is this a good stock to buy?
Twilio, a cloud-based communications platform, had its stock decline today despite zero company specific news.
Investors have modified their investing strategy in the face of growing inflation, a potential war in Europe and the expectation that the Federal Reserve would hike interest rates as easrly as next month, causing tech stocks to be rather volatile in recent months. With inflation reaching a 40 year high, the Federal Reserve is increasingly likely to hike interest rates many times during 2022. The Fed's next meeting, later next month, might result in the first rate rise. The cost of borrowing money for businesses will rise as interest rates rise. This typically leads to firms borrowing less, which might hinder their growth.
As for why the stock is a good pick, here's some important things to take note of:
1. Growth - For several years, the company has been quickly expanding. Revenue grew at a pace of 59% each year, from $277 million in 2016 to $2.8 billion in 2021. It also posted a 61% yearly sales increase in 2021, demonstrating that it is still gaining traction.
2. The company is just getting started - While these recent growth rates are encouraging, the most significant concern for potential investors is what's next. During the company's recent fourth quarter results call, CEO Jeff Lawson expressed his optimism in the company's future, highlighting its 34% organic sales growth rate in 2021 and said he planned to achieve that level again over the following several years. However, investors should bear in mind that growth may be cyclical, which means it might be lumpy at times.
3. Profitability - Sure, the company right now is not very profitable due to the standard expenses for a growing company. Based on the information being produced by Twilio, the firm's revenue growth should continue to surpass its spending growth, bringing the company closer to profitability in the coming years. Last quarter's adjusted gross product margin was 54.8%, but management has set a long term goal of exceeding 60%, suggesting confidence in the company's capacity to maintain growing its margins. Twilio's progress towards that aim will be monitored by investors.
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