The Executive Interview series, as part of Tech Investment Insights, provide you with exclusive interviews with newsmakers, industry leaders, and experts in the technology industry.
Interviews do not imply endorsement of the company, its products, or any associated securities. Rather, it is meant to provide you more information for your consideration from those currently directly in the industry itself.
I recently had the opportunity to interview Khozema Shipchandler, Chief Financial Officer for Twilio (TWLO). Twilio is a cloud communications company which provides a variety of voice, SMS, and other communications and support services that are programmable and utilize cloud.
Twilio was founded in 2008 and went public in June 2016. Twilio describes itself as having "democratized communications" by building strong communications infrastructure across a wide variety of platforms and mediums that utilize APIs that are usable by "any developer." Twilio presents its products as essentially a "developer platform for communications."
Customer accounts grew from 16,631 at the end of FY14 to 48,979 by the end of FY17, as well as from 48,979 at the end of FY18 to 161,869 as of Q2 2019. At the end of Q2 2019, the company had 2,369 employees and is headquartered in San Francisco, California.
In FY18, FY17, FY16, and FY15 the company made $650.067M, $399.020M, $277.335M, and $166.919 in GAAP revenue, respectively. Twilio's net losses in FY18, FY17, FY16, and FY15 were $(121.949)M, $(63.708)M, $(41.324)M, and $(35.504)M, GAAP respectively. Stock-based compensation, referenced in the interview, accounted for $93.273M, $49.619M, $24.225M, and $8.877M in FY18, FY17, FY16, and FY15, respectively.
Under non-GAAP measures, Twilio began making consistent positive net income by the end of Q2 2018 (barring a small exception in Q4 2016), as it made $2.210M in net income on $147.754M in revenue for an operating margin of 1%. Its non-GAAP operating margins since have held relatively steady at around 1% except for Q3 2018 with 3%.
Twilio's stock has rallied immensely since its IPO in the middle of the 2016 stock slump, with Twilio's price up 331.6% to $124.25 as of market close on September 6, 2019. As of September 6, 2019, year-to-date the stock is up 39.14% and year-on-year is up 52.06% and currently has a market capitalization of about $16.81 billion.
Shipchandler joined Twilio in 2018 as CFO. He previously served as GE Digital's (GE) Chief Commercial Officer, amid a variety of other executive roles at GE.
ER: Twilio is in the business of cloud communications platforms. What does Twilio do, who does it sell to, and how does it make money?
KS: Twilio is the leading cloud communications platform that enables developers to embed global channels of communication like voice, text, chat, video and email into their applications. By providing easy to use communication APIs, Twilio enables businesses to more effectively engage with their customers. For example, Twilio is the platform that powers the messages sent between you and your Airbnb host, the phone call between your ride-share driver, the emails you receive from Spotify (NYSE:SPOT) and the alerts from DoorDash or Deliveroo when your meal is on the way.
Innovative companies all over the world including Coca-Cola (NYSE:KO), Box (NYSE:BOX), Hulu, The Home Depot (NYSE:HD), eBay (NASDAQ:EBAY), Intuit (NASDAQ:INTU), TaskRabbit, Sprint (NYSE:S), Trulia, Zendesk (NYSE:ZEN), Sony (NYSE:SNE) and Shopify (NYSE:SHOP) integrate Twilio's communications services into their apps.
As Twilio's customers succeed, we share in their success through our usage-based revenue model. Our revenue grows as customers increase their usage of a product, extend their usage of a product to new applications or adopt a new product.
ER: Twilio states it has "democratized communications channels." What does that mean?
KS: Prior to Twilio, communications technology was based in hardware and inaccessible to the software developers of the world. Twilio's platform virtualized communications infrastructure into APIs that allowed developers to build any communication channel - voice, messaging, chat, email - into their applications. By opening up communications to the 20+ million software developers globally, Twilio unlocked a wave of innovation that transformed the way consumers interact with businesses and applications.
ER: Since early 2018, Twilio's stock has skyrocketed. What has led to Twilio's recent success and market interest in the company?
KS: Our developer-first approach continues to drive success as every company becomes a software company, and as every company looks for new ways to engage with customers across multiple channels. We believe no one is as well-positioned as Twilio to support companies through this transition. We have the opportunity to change communications and customer engagement for decades to come.
We also recently celebrated an important milestone in Q2, crossing the $1 billion annualized revenue run rate with industry leading growth at our size. It's our customers who place their trust in us and our Twilions around the world who are relentlessly focusing on our customers' success along the way that got us here.
ER: In FY18 Twilio brought in $650M in revenue and lost $121.9M. As compared to FY17, revenue increased from $399M but losses steepened from $63.7M. This trend is similar for FY16 to FY17. How and when does Twilio hope to become profitable?
KS: While it's true we're unprofitable on a GAAP basis, we are profitable on a non-GAAP basis, which excludes stock-based compensation and intangibles amortization, which is the convention that most software companies use. Today, we are making a choice to reinvest money that we could otherwise drop to the bottom line back into the business, because we see such significant growth opportunities in front of us. We have an incredibly strong balance sheet with $1.9B of cash, so feel quite good about the financial performance of the company.
ER: What are some of the most high potential products and lines of business Twilio sees for the company in the next few years?
KS: Twilio's voice and messaging products remain core drivers of revenue in our business. We are seeing a trend that modern consumers, especially younger generations, are spending less time on mobile apps and more time messaging. As companies adapt towards this trend, messaging channels are becoming increasingly important for customer engagement and we are seeing that reflected in our business.
That said, the majority of conversations consumers are having with businesses still goes through a contact center. Twilio is very excited and seeing great traction with our contact center platform, Flex. Flex's programmable approach is resonating with many types of customers who realize that in order to compete, they must differentiate their customer experience. Flex allows them to build the exact experience they need for their business.
In February, Twilio acquired SendGrid and brought email onto the Twilio platform. Just a few weeks ago at SIGNAL, we announced SendGrid Ads, a capability within SendGrid Marketing Campaigns which enables marketers to create cohesive, multichannel engagements that drive business growth. With SendGrid, Twilio provides businesses one platform for every point of customer engagement - even now with social advertising.
We have also been investing in our IoT business, and we're seeing some really exciting use cases via cellular IoT. The adoption of our IoT connectivity products reminds us of how our Programmable Communications Cloud products inspired developers and enterprises to invent new use cases. We are starting to see a lot of traction in the Smart City market where Twilio's IoT SIMs are powering everything from scooters and bikes that are transforming urban commutes to connected waste containers that are cutting down on carbon emissions by optimizing trash routes.
ER: How does Twilio see the cloud communications space developing over the next few years and what will be the most interesting trends to watch? How does Twilio hope to capitalize on these trends and stand out among competitors?
KS: What I think is most important to focus on is the fact that we're in the midst of another seismic shift in the way companies and consumers communicate. While a decade ago, the rise of social media pushed communications into the public sphere, individuals are now gravitating toward secure, one-to-one channels. They want less communication, but at a higher quality. We have to make sure consumers have more control over, and can choose, the communication that reaches them. Twilio's role is to help companies meet their customers when, where and how they want to engage.
Explore other segments of Tech Investment Insights' Executive Interview series below: