So they're still not profitable. This is surprising, since they don't have any big capital investments. They're not doing anything that takes a lot of R&D. The thing runs on Amazon AWS. They've been operating for years and should be profitable by now. Yes, they're growing fast, but the costs don't rise in advance of the growth. You don't have to prepay Amazon for AWS.
"Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock."
So the public stockholders have no power. The insiders can't be fired. Google and Facebook did that, but they were big successes before the IPO. It's unusual to try to pull that off when you're unprofitable. The NYSE, on which they want to list, didn't allow multiple classes of stock until 1986.
WhatsApp is only 15% of their revenue, so that's not a big problem.
Twilio's big thing is telephony integration. They have a SS7 gateway and can integrate Internet and telephony. If Amazon or Google offered that, Twilio would have a big problem. Google has Google Voice and Google Hangouts, but doesn't offer telephony integration via a usable API. Yet.
This IPO is an exit for their VCs. They were all the way up to a series E round, and since they grew fast by losing money, the early investors had to pour in a lot of cash.
Twilio went from $33m to $59 Q1 '15 to Q1 '16. That's huge growth - and is a lot to like.
Virtually every company that is growing at 80% YoY runs unprofitably.
Here's why: compounding. They're growing 80% YoY because of that spend and it's absolutely worth it.
Say they could run break even at 50% YoY growth. Straight line that growth through 2019 and you have a company doing just shy of $800m in annual revenue. Invest $40m extra a year for 80% growth (admittedly very simplified!), and you have a company doing $1.4B per year.
Growth costs money up front: it's marketing, it's customer acquisition, it's hiring and scaling so you're ready to do nearly double the volume next year and it's opening new lines of business.
You'd be nuts not to spend some extra cash when a) unit economics are good and b) you can turn it into significantly more cash in 12-24 months.
Twilio could run profitably tomorrow at the cost of hundreds of millions in revenue and potential profit 3, 4 and 5 years out.
Disclaimer: Jeff Lawson is a CEO I greatly admire.
Net loss: Don't think that is a biggie. They expanded their cost base both in R&D, sales & marketing, and general and admin. With a little bit of cost discipline for one year, they are going to be profitable.
Voting rights: that is indeed yucky.
Competitive threat: Not really. The inertia for existing customers is high, especially since the average revenue per active account is about $580/month. For a big company, that is not worth optimizing. And switching to another (unproven) API from a running system... not likely.
> This is surprising, since they don't have any big capital investments.
I haven't looked at the S-1 and I'm not sure if they even break this out, but user acquisition costs are all paid up front, while the value is realised over the life of the customer, depending on the average lifetime of a customer, this could be fine, if risky. And you often do prepay for AWS since it saves you money over the course of a few years.
FY13 FY14 FY15
Sales and marketing: 21,931 33,322 49,308
Just turn it off and now you have a $11M profit. NetSuite and SuccessFactors did it in 2008 and they're both profitable, or at least were in NetSuite's case (NetSuite has recently pushed hard on S&M, hence a decline in profit in the last few years, probably because the market is dictating to do so and money is cheap).
Just want to note that yes, cost can rise in advance of growth. Whether or not that's "OK" depends on the unit economics.
Frankly, I share your skepticism. I think you hit the nail on the head - Twilio has few, if any moats, that can't be crossed by large competitors like Google or Amazon.
And if I'm Bezos and Twilio is making all this money off the back of AWS, why not just cut out Twilio? Heck, Amazon is doing that to friggin vitamin makers, why not do it to tech companies?
Their large clientele is all sorts of spamming services. I receive tons of messages daily (currently ATT but Sprint before) for different type of products and services, mostly work by completing surveys. Everytime I trace number down - its Twilio. And their spam complaint team never answer to my complains, so unfortunately as long as spammers can use their services, they will be making money.
On the good side, I use their services anytime I need to "confirm my identity through a text message".
I think its impossible to determine whether a cellphone is a real number or Twilio number so it always works! I have a cash prepaid Visa card that I can purchase a Twilio number for $1 and have a text message with confirmation code come to my throwaway email address. Well worth a dollar for almost complete anonymity!!
Why do so many software companies focus solely on growth? A traditional business with $166 million in revenue is huge. Why are investors not asking for a return on their investments already?
Don't investors usually look for a return on their investments within 2-3 years?
Personally, I'll stick to a rule I found very valuable with the first dot-com bubble: don't touch a stock until the company has had 4 quarters of profitability. Simple rule. Amazing how companies these days never pass that filter.
I don't think Google is much of a threat, they seem to hate Gvoice internally having had several opportunities to make it a platform and passing (yes they used to have voice APIs on code.google.com). Bottom line, I don't think Google gets it (kind of like Facebook and web search)
And since the Unicorn Feeding stations have all been shut down :-) unprofitable companies of this size have three choices, IPO, die quickly, or try to shrink into a profitable chunk and bootstrap slowly into larger growth. I commend them for the IPO route, I expect to see more companies in this spot. This path also gives employees some liquidity but if they did a big reverse split prior to the S-1 its possible the employees will have underwater options at the IPO, anyone working there care to comment on that?
Why would a company want to raise money (IPO) if they had a high net profit margin? If they're profitable and happy about it, the insiders could just dividend out the money.
Had no idea that WhatsApp was even a Twilio customer let alone one of its largest.
>We currently generate significant revenue from WhatsApp and the loss of WhatsApp could harm our business, results of operations and financial condition.
>In 2013, 2014 and 2015 and the three months ended March 31, 2016, WhatsApp accounted for 11%, 13%, 17% and 15% of our revenue, respectively. WhatsApp uses our Programmable Voice products and Programmable Messaging products in its applications to verify new and existing users on its service. We have seen year-over-year growth in WhatsApp's use of our products since 2013 as its service has expanded and as it has increased the use of our products within its applications.
>Our Variable Customer Accounts, including WhatsApp, do not have long-term contracts with us and may reduce or fully terminate their usage of our products at any time without penalty or termination charges. In addition, the usage of our products by WhatsApp and other Variable Customer Accounts may change significantly between periods.
Revenue is great; sales & marketing costs are fine, competitive environment is great; the main concern here is the cost of ongoing service.
Revenue: Twilio made $166M in 2015. From Q1 2015 to Q1 2016, thew grew 80% -- so we can project a 2016 revenue of around $300M. At that pace, they'll hit ~$1B in 2018 or 2019.
Landscape: They have very few competitors, in constrast to other high-profile enterprise startups like Box.
Cost of revenue: Their cost of revenue -- servers, telecom bandwidth, customer support -- is ~45% of revenue. Typical SaaS startups run around 20-30%. I suppose this is the danger of being in the telecom space -- you do have high data costs.
Sales & marketing: Coming in at ~$50M, or ~30% of revenue is quite reasonable. Box raised concerns a couple of years back when S&M were 125% of revenue; they were able to get it down to 65% or so and then they IPO-ed. 30% is fine.
The Risks sections are always like that. Any advertisements for stocks must have disclaimers about a wide range of possible risks, and that despite promising historical data you could lose your entire investment. Otherwise they could face expensive lawsuits when future shareholders claim that they were misled and not informed of these risks.
For example from Facebook's S-1: "Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.", "We expect our rates of growth will decline in the future."
Google's S-1: "We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.", "We are susceptible to index spammers who could harm the integrity of our web search results.", "New technologies could block our ads, which would harm our business."
This kind of language is very standard. The risks section pretty much always contains obvious platitudes ("An earthquake might destroy all our computers," "All our employees may quit").
The "risk factors" section is a required part of an S-1. The applicable SEC rule[1] says that the section should list "the most significant factors that make the offering speculative or risky."
You do see some really interesting ones from time to time. For example, RSA's annual reports used to include the following math-related risk factor:
"Our cryptographic systems depend in part on the application of certain mathematical principles. The security afforded by our encryption products is based on the assumption that the “factoring” of the composite of large prime numbers is difficult. If an “easy factoring method” were developed, then the security of our encryption products would be reduced or eliminated."[2]
I am by no means an expert here, and IANAL, but in my limited experience, yes it is very common to see statements like that in filings. They have to disclose any and all potential risks to investors, and as basic as it seems that is a risk.
I don't have much knowledge here, but I always thought one of the main reasons to go public because you want to raise money to either expand or you are strapped for money. If anything I would be suspect of companies who are extremely profitable and doesn't need to raise money at all but going public.
Looking at their escalating losses, I have to wonder if this IPO is a desperation play after failing to raise private money at an acceptable valuation in the current climate.
I continue to be surprised by the trend of companies who have fallen short of profitability filing for IPO's. So often i find myself asking "is this the best for the company and its employees or is it best for the investors who want a faster return, at the expense of the company and its employees?"
I'm surprised all of these comments are so negative. Yeah, maybe there are some things that don't quite add up yet, but they have great developer engagement, solid services, and are actually innovating in the space. Twilio is a winner. When or how much is another question.
They are not being managed for profitability; they are being managed for scale. They are growing at near 100% y/o/y, so management has decided to keep the pedal down until they win the market. Profitability comes in the out years, way down the line. Amazon is the most famous (successful) example of this.
I don't work there, but I can assure you that nothing at Twilio is structured to be a profitable small company.
It's hard to overstate how much easier the Twilio API has made it for developers to interact with SMS and phones.
When I first built StoryWorth, it only worked over email because I thought voice recording would be too complex (both to use and to implement).
However, users kept asking for it so I finally bit the bullet... and it was way easier than I expected. Using the Twilio API, I had voice recordings over the phone working within days.
The team is also super friendly. Less than a month after our launch, someone reached out to me and they wrote about our company on their blog:
Does anyone have recommendations for resources/guides to S-1s (ie what to look for, which sections are usually boilerplate, what is normal/abnormal, etc)?
We use Twilio for our phone support over at getstream.io, it was really easy to setup. Makes it fun to build this type of stuff :) Congrats to the their team!
Interesting that they are "selling" base revenues. After all total revenues in 2015 were $167m, and base revenues only $137m.
The definition of the $30m "missing" revenues seems to indicate that this piece of the business might churn at any moment, or is just a brief "burst" of revenues w/o the transactional nature of SaaS.
Depending on the lumpiness of these bursts, that is a smart decision to "ring-fence" in the reporting of an otherwise sound recurring business. Guess this is a good CFO here...
How good of a guess do you need? If you want something that's +/- 50% you can probably do that pretty easily. +/- 10% is probably impossible at this stage. They will do a roadshow (fly around the country literally pitching large investors on buying their stock). After the roadshow they will gather data about the interest, and where it's from. Institutional investors are usually preferred over retail because they are less likely to immediately flip the shares -- but institutions may not pay as much. They will hope to have far more interest than they have shares allocated for the IPO, which will allow them to raise the price (stokes interest in the stock, which helps support the price once they're public). There's a lot that goes into this and I'm only marginally more knowledgeable than you are, so I'm probably missing 90% of the interesting stuff.
If you are a shareholder and asking from that perspective, or know any employees who may hold options, you should keep in mind that there will be an associated lockup for 180 days after IPO, during which time the stock will probably do all sorts of "interesting" things. Predicting the price it will be when the lockup expires is beyond anyone's ability. :)
Down the line there will be estimates -- companies progressively update their S-1s as they approach the actual IPO date. It's almost always challenging to get in at the opening price, though -- usually those are deals done with big funds and banks that help place shares.
If someone with better knowledge of S-1s could shed light on this: where can we see the option pool / option grants awarded to employees? Must be somewhere in there, no?
[+] [-] Animats|9 years ago|reply
"Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock."
So the public stockholders have no power. The insiders can't be fired. Google and Facebook did that, but they were big successes before the IPO. It's unusual to try to pull that off when you're unprofitable. The NYSE, on which they want to list, didn't allow multiple classes of stock until 1986.
WhatsApp is only 15% of their revenue, so that's not a big problem.
Twilio's big thing is telephony integration. They have a SS7 gateway and can integrate Internet and telephony. If Amazon or Google offered that, Twilio would have a big problem. Google has Google Voice and Google Hangouts, but doesn't offer telephony integration via a usable API. Yet.
This IPO is an exit for their VCs. They were all the way up to a series E round, and since they grew fast by losing money, the early investors had to pour in a lot of cash.
[+] [-] gdudeman|9 years ago|reply
Virtually every company that is growing at 80% YoY runs unprofitably.
Here's why: compounding. They're growing 80% YoY because of that spend and it's absolutely worth it.
Say they could run break even at 50% YoY growth. Straight line that growth through 2019 and you have a company doing just shy of $800m in annual revenue. Invest $40m extra a year for 80% growth (admittedly very simplified!), and you have a company doing $1.4B per year.
Growth costs money up front: it's marketing, it's customer acquisition, it's hiring and scaling so you're ready to do nearly double the volume next year and it's opening new lines of business.
You'd be nuts not to spend some extra cash when a) unit economics are good and b) you can turn it into significantly more cash in 12-24 months.
Twilio could run profitably tomorrow at the cost of hundreds of millions in revenue and potential profit 3, 4 and 5 years out.
Disclaimer: Jeff Lawson is a CEO I greatly admire.
[+] [-] shaqbert|9 years ago|reply
Voting rights: that is indeed yucky.
Competitive threat: Not really. The inertia for existing customers is high, especially since the average revenue per active account is about $580/month. For a big company, that is not worth optimizing. And switching to another (unproven) API from a running system... not likely.
[+] [-] Eridrus|9 years ago|reply
I haven't looked at the S-1 and I'm not sure if they even break this out, but user acquisition costs are all paid up front, while the value is realised over the life of the customer, depending on the average lifetime of a customer, this could be fine, if risky. And you often do prepay for AWS since it saves you money over the course of a few years.
[+] [-] mbesto|9 years ago|reply
EDIT: Grammar.
[+] [-] tryitnow|9 years ago|reply
Frankly, I share your skepticism. I think you hit the nail on the head - Twilio has few, if any moats, that can't be crossed by large competitors like Google or Amazon.
And if I'm Bezos and Twilio is making all this money off the back of AWS, why not just cut out Twilio? Heck, Amazon is doing that to friggin vitamin makers, why not do it to tech companies?
[+] [-] joering2|9 years ago|reply
On the good side, I use their services anytime I need to "confirm my identity through a text message".
I think its impossible to determine whether a cellphone is a real number or Twilio number so it always works! I have a cash prepaid Visa card that I can purchase a Twilio number for $1 and have a text message with confirmation code come to my throwaway email address. Well worth a dollar for almost complete anonymity!!
[+] [-] antoniuschan99|9 years ago|reply
Why do so many software companies focus solely on growth? A traditional business with $166 million in revenue is huge. Why are investors not asking for a return on their investments already?
Don't investors usually look for a return on their investments within 2-3 years?
[+] [-] alain94040|9 years ago|reply
[+] [-] ChuckMcM|9 years ago|reply
And since the Unicorn Feeding stations have all been shut down :-) unprofitable companies of this size have three choices, IPO, die quickly, or try to shrink into a profitable chunk and bootstrap slowly into larger growth. I commend them for the IPO route, I expect to see more companies in this spot. This path also gives employees some liquidity but if they did a big reverse split prior to the S-1 its possible the employees will have underwater options at the IPO, anyone working there care to comment on that?
[+] [-] jgalt212|9 years ago|reply
It may be unusual, but to me it seems even more important to have uncontested control when the common shareholders may be angry.
[+] [-] api|9 years ago|reply
That translates to: how manual is their business? How much cost in the form of wages, contractors, etc. could they shed?
If the answer is that they could easily become profitable, that means they're leaning into growth. If the answer is 'no' that's a bad sign.
[+] [-] smileysteve|9 years ago|reply
Why would a company want to raise money (IPO) if they had a high net profit margin? If they're profitable and happy about it, the insiders could just dividend out the money.
[+] [-] emmett|9 years ago|reply
[+] [-] TheLarch|9 years ago|reply
[+] [-] markolschesky|9 years ago|reply
>We currently generate significant revenue from WhatsApp and the loss of WhatsApp could harm our business, results of operations and financial condition.
>In 2013, 2014 and 2015 and the three months ended March 31, 2016, WhatsApp accounted for 11%, 13%, 17% and 15% of our revenue, respectively. WhatsApp uses our Programmable Voice products and Programmable Messaging products in its applications to verify new and existing users on its service. We have seen year-over-year growth in WhatsApp's use of our products since 2013 as its service has expanded and as it has increased the use of our products within its applications.
>Our Variable Customer Accounts, including WhatsApp, do not have long-term contracts with us and may reduce or fully terminate their usage of our products at any time without penalty or termination charges. In addition, the usage of our products by WhatsApp and other Variable Customer Accounts may change significantly between periods.
[+] [-] calcsam|9 years ago|reply
Revenue: Twilio made $166M in 2015. From Q1 2015 to Q1 2016, thew grew 80% -- so we can project a 2016 revenue of around $300M. At that pace, they'll hit ~$1B in 2018 or 2019.
Landscape: They have very few competitors, in constrast to other high-profile enterprise startups like Box.
Cost of revenue: Their cost of revenue -- servers, telecom bandwidth, customer support -- is ~45% of revenue. Typical SaaS startups run around 20-30%. I suppose this is the danger of being in the telecom space -- you do have high data costs.
Sales & marketing: Coming in at ~$50M, or ~30% of revenue is quite reasonable. Box raised concerns a couple of years back when S&M were 125% of revenue; they were able to get it down to 65% or so and then they IPO-ed. 30% is fine.
[+] [-] breaker05|9 years ago|reply
[+] [-] stanmancan|9 years ago|reply
[+] [-] ProblemFactory|9 years ago|reply
For example from Facebook's S-1: "Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.", "We expect our rates of growth will decline in the future."
Google's S-1: "We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.", "We are susceptible to index spammers who could harm the integrity of our web search results.", "New technologies could block our ads, which would harm our business."
[+] [-] mattj|9 years ago|reply
[+] [-] matthewmcg|9 years ago|reply
You do see some really interesting ones from time to time. For example, RSA's annual reports used to include the following math-related risk factor:
"Our cryptographic systems depend in part on the application of certain mathematical principles. The security afforded by our encryption products is based on the assumption that the “factoring” of the composite of large prime numbers is difficult. If an “easy factoring method” were developed, then the security of our encryption products would be reduced or eliminated."[2]
[1] https://www.law.cornell.edu/cfr/text/17/229.503
[2] https://www.sec.gov/Archives/edgar/data/932064/0000950135010...
[+] [-] jeffmould|9 years ago|reply
[+] [-] pavs|9 years ago|reply
[+] [-] joeblau|9 years ago|reply
[+] [-] pbreit|9 years ago|reply
[+] [-] jackgavigan|9 years ago|reply
[+] [-] rottencupcakes|9 years ago|reply
[+] [-] liquidise|9 years ago|reply
[+] [-] andyfleming|9 years ago|reply
[+] [-] ben_jones|9 years ago|reply
[1]: https://www.quora.com/Who-are-Twilios-competitors
[+] [-] karangoeluw|9 years ago|reply
[+] [-] runako|9 years ago|reply
I don't work there, but I can assure you that nothing at Twilio is structured to be a profitable small company.
[+] [-] unknown|9 years ago|reply
[deleted]
[+] [-] nickbaum|9 years ago|reply
When I first built StoryWorth, it only worked over email because I thought voice recording would be too complex (both to use and to implement).
However, users kept asking for it so I finally bit the bullet... and it was way easier than I expected. Using the Twilio API, I had voice recordings over the phone working within days.
The team is also super friendly. Less than a month after our launch, someone reached out to me and they wrote about our company on their blog:
https://www.twilio.com/blog/2013/05/old-stories-new-tech-sto...
Really glad to see their continued success!
[+] [-] Nicholas_C|9 years ago|reply
The finance geek in me is very excited to see their numbers and have a chance to do some due diligence and possibly invest.
[+] [-] anotherhacker|9 years ago|reply
[+] [-] tqi|9 years ago|reply
[+] [-] tschellenbach|9 years ago|reply
[+] [-] shaqbert|9 years ago|reply
The definition of the $30m "missing" revenues seems to indicate that this piece of the business might churn at any moment, or is just a brief "burst" of revenues w/o the transactional nature of SaaS.
Depending on the lumpiness of these bursts, that is a smart decision to "ring-fence" in the reporting of an otherwise sound recurring business. Guess this is a good CFO here...
[+] [-] joshhart|9 years ago|reply
[+] [-] polmuz|9 years ago|reply
[+] [-] josefdlange|9 years ago|reply
[+] [-] sulam|9 years ago|reply
If you are a shareholder and asking from that perspective, or know any employees who may hold options, you should keep in mind that there will be an associated lockup for 180 days after IPO, during which time the stock will probably do all sorts of "interesting" things. Predicting the price it will be when the lockup expires is beyond anyone's ability. :)
[+] [-] allworknoplay|9 years ago|reply
[+] [-] 2ifrgtmypss|9 years ago|reply
[deleted]
[+] [-] kumarski|9 years ago|reply
https://www.quora.com/Who-are-Twilios-competitors/answer/Kum... - My answer to who are their competitors. The list of competitors is massive.
[+] [-] firebones|9 years ago|reply
https://en.wikipedia.org/wiki/Initial_public_offering#Quiet_... (???)
[+] [-] m1117|9 years ago|reply
[+] [-] cissou|9 years ago|reply