What's going on?
Shares of Twilio, a tech company specializing in communications through the cloud, jumped by 10% on Tuesday, after the company reported that its revenue had grown by almost 50% in the last year!
What does this mean?
Twilio supports companies like Uber, who uses its service to connect customers’ calls to their drivers’ phones via cloud technology. When Twilio became a public company in 2016, its stock price almost doubled on its first day of trading. However, in May Twilio announced that Uber, its biggest customer, would move some of Twilio’s services in-house – and the stock fell sharply (almost back to the price at which it initially became public).
But, in its latest quarter, Twilio increased the number of companies it works with by 41% (and it diversified into more industries). That news, combined with the big increase in Twilio’s sales, suggests that the loss of some of Uber’s business isn’t as big a deal as investors initially thought.
Why should I care?
The bigger picture: Twilio is benefiting from getting bigger (a.k.a. scale).
As Twilio makes more revenue, it is losing less money. This is what should ideally happen as a company expands: as operations grow, the cost of producing a service should drop. And, therefore, as the company’s revenues keep on growing, its profits should increase considerably.
For markets: Investing in stocks after their IPOs can be a risky strategy.
Twilio’s stock increased almost 500% from its IPO price within the first three months – which is a fantastic return for investors! However, it began selling off about three months later. Then the news regarding Uber came out (pushing it down more). Investors at Twilio’s IPO price have still made a great return, but investors that picked up stock following the IPO are likely nursing losses. Snap Inc. and Blue Apron are two more recent examples of IPOs that have, so far, turned out even worse no matter when investors bought in.