Will Cisco Acquire Twilio?

According to a report published by Market Insights earlier this year, the global cloud communication platform market is expected to grow 27% annually to $9.87 billion by 2025. The industry is seeing some consolidation as well. Earlier this year, Twilio (NYSE:TWLO) announced a $3 billion acquisition of SendGrid. I believe the consolidation in the industry will continue during the coming quarters, and Twilio itself may become a potential target.

Twilio’s Financials

For the recently reported first quarter results, Twilio saw revenues grow 81% to $233.1 million, ahead of the market’s forecast of $224 million. It reported net loss of $36.5 million, or $0.31 a share, compared with loss of $23.7 million, or $0.25 a share a year ago. On an adjusted basis, it reported an EPS of $0.05, compared with the Street’s forecast of $0.01 per share.

Among key metrics, it ended the quarter with almost 154,800 Active Customer Accounts. Dollar-Based Net Expansion Rate was 146%, compared to 132% over a year ago.

For the current quarter, Twilio forecast revenues of $262-$265 million with an EPS of $0.02-$0.03. The market was looking for revenues of $253 million for the quarter with an EPS of $0.02. Twilio expects to end the year with revenues of $1.102-$1.111 billion and an EPS of $0.11-$0.13. The Street had forecast revenues of $1.08 billion with an EPS of $0.10.

Twilio’s Growth Focus

Earlier this year, Twilio had announced the $3 billion acquisition of email specialist SendGrid. SendGrid’s cloud-based email service will add email capability to Twilio’s offering. Through the acquisition, Twilio was set to manage more than 140,000 active customers and more than 600 billion global interactions. During the quarter, Twilio continued to integrate the acquisition and announced that it hit a milestone of 5 million registered developer accounts on the two products.

It recently released Twilio for Salesforce, a managed service offering for Salesforce that brings programmable communication within the Salesforce environment. The new offering allows organizations to send customized SMS messages that can help cover one-to-one personalized interaction, send alerts and notifications, and act as sales and marketing campaigns to enhance existing workflows in Salesforce CRM.

Within the Programmable Communications Cloud layer, Twilio continued to work towards combating the surge of global calling. It is working towards addressing issue of users receiving tele-sales calls from unknown numbers with pre-recorded messages. To address the issue, Twilio is improving its terms of service to expressly prohibit this type of activity to platform level by adding features such as verifications and artificial intelligence. It also released a free service that allows consumers to look up any number to see where the call is coming from and help report suspected global call. It is also working with regulators to build a phone number compliance functionality into the platform as an automated service.

I think that the consolidation in the cloud communications market will continue in the coming quarters. Twilio itself could make a good acquisition target for a tech giant like Cisco. In 2015, Cisco had acquired Tropo, a privately held Menlo Park, California-based company that provided a cloud API platform that enabled customers and developers to embed real-time communications within their applications. The acquisition was aimed at enhancing the collaboration capabilities for Cisco’s existing Collaboration Technology Group. Adding Twilio to Cisco would further enhance those capabilities. But at its current stock price, Twilio is an expensive asset to purchase.

I am also very interested in understanding what apps the 5 million registered developers are developing on the Twilio platform. In that pool are the future major revenue generators, and it would be great if Twilio starts to report some of this data in its future releases.

Twilio’s stock is trading at $132.96 with a market capitalization of $16.8 billion. It had climbed to a 52-week high of $144.62 earlier this month. The stock has been climbing from the 52-week of $51.82 that it was trading at nearly a year ago.

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