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Twilio (NYSE:TWLO), a cloud communications platform that enables developers to build, scale, and leverage customer engagement in software applications in the United States and internationally is a company that disappointed its shareholders in 2022 .
The stock is down 65% year-to-date and is trading very close to its 52-week low of $87.67. Is TWLO stock a screaming buy now? I mentioned the word scream to emphasize the idea of buying Twilio stock now. I consider this a very bad idea overall, and I have a bearish opinion.
The main arguments behind a clearly bearish view of Twilio’s shares start with its profitability history.
Things look bad when no profit is made
Twilio was incorporated in 2008 and, after 14 years in business, has yet to deliver to its shareholders one of the most important catalysts that determine stock prices both in the short and long term, the profits.
Its stock price in 2022 is like a quiz for novice investors checking technical analysis to enter new trades. What is the dominant trend? This is a clear downward trend. In early January 2022, TWLO stock was trading at $262. Imagine waking up after six months and opening your brokerage account to see that the stock is now trading at around $90. This is not good news at all.
This happened because there is one main cause, the business is not profitable. It has been losing money for the last five consecutive years, from 2017 to 2021, and for the last five consecutive quarters. In a year of growth and overvalued stocks, Twilio has rewarded its shareholders with heavy losses. Is it a surprise? No. I will elaborate more on the evaluation part below.
Sales growth in the first quarter of 2022 was 3.87% whereas in the last three consecutive quarters it was in double digits. Take a slowdown in sales growth and combine it with a series of net losses and the flashing sign for investors is the one that indicates the exit. Investors have lost patience with Twilio.
The results of the first quarter of 2022 did not make a significant rebound
Twilio in its Q1 2022 financial results reported a beat on revenue and on EPS. That should have been enough to have a short-term rally. I think that rally didn’t materialize despite the good news of a 48% increase in revenue year over year and a net expansion rate of 127% based on the figure of business in the first quarter for two reasons. First, the company posted a larger year-over-year net loss of $221.62 million, compared to a net loss of $206.54 million in the first quarter of 2021.
Second, the revenue forecast for the second quarter ending June 30, 2022 of $912 million to $922 million showed a marked slowdown in growth. Expected quarter-over-quarter growth is around 5%, again a single-digit number, and half of what it was in 2021. That’s not good news at all.
Is TWLO stock now cheap?
I see no evidence that Twilio shares are cheap. The Price to Book (FWD) ratio is well below the median for the information technology sector, but that’s only because the stock has fallen sharply. The Price/Sales (FWD), EV/EBITDA (FWD) and Price/Cash Flow (FWD) ratios of the stock are above industry ratios. For example, the price/cash flow (FWD) of TWLO stock is 1,915.43% above the industry median.
I don’t see TWLO stock hitting bottom anytime soon if the stock market selloff continues. We have two interest rate hikes in the middle of the summer, and more to follow until the end of the year, a scenario which is not favorable for growth stocks like Twilio which cannot generate profit.
As of the date of publication, Stavros Georgiadis, CFA had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.