
Twilio S-1 - kressaty
https://www.sec.gov/Archives/edgar/data/1447669/000104746916013448/a2227414zs-1.htm
======
Animats
There's a lot there not to like:

    
    
        Revenue: $166,919,000
        Net Loss: $38,896,000
    

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.

~~~
antoniuschan99
I don't understand this. Is it a land-grab focus?

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?

~~~
gdudeman
Return can be two things: profit now or future profit.

A traditional business with $166m in revenue has few places to invest extra
cash that turn $1 into $4 in < 24 months. Twilio has this.

What would be crazy is _not_ investing in growth.

------
markolschesky
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.

~~~
hexalisk
Yes, this is fascinating. I can only imagine that as more and more developers
flock to "free" SMS verification services provided by companies like Facebook
(Account Kit) and Twitter (Digits), their long term outlook is even more
unsure.

~~~
stemuk
Could you share a link to the Firebase SMS verification you stated in your
comment? Was actually looking for something like this... :D

~~~
hexalisk
Ah, sorry about that -it looks like I misremembered and they don't actually
offer that. I'll edit that out so it doesn't mislead more people.

~~~
stemuk
Sure, no problem! Was just curious, it seemed too good to be true :D

------
calcsam
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.

~~~
bkruse
The cost of revenue is interesting. I want to shine some light from an insider
perspective to the industry.

I operate a telecom company that mimics the twilio API and we are nabbing
their bigger customers left and right. Being fully transparent - our average
cost per minute of long-distance is $0.00014 (with 6 second increments) and
twilio charges $0.0015/minute (with _60_ second increments).

Wholesale long-distance prices are falling MUCH faster than application
providers charging per-call or per-minute. IMHO, That arbitrage will be
squeezed eventually as telecom becomes more commoditized.

~~~
ziszis
Twilio has been very effective at the low volume end of the market with
individual developers where simplicity and time to market is more important
than price.

But that equation changes as a company grows. The question remains whether
they can also play effectively at the high volume end of the mArket. I have
heard of several other companies that mimic the Twilio API, but with much more
competitive pricing.

AWS is successful because companies are deeply locked into their unique
services and APIs. Twilio does not (yet) have the same deep lock-in of
customers.

~~~
bkruse
That's a great comparison between AWS and Twilio.

I think Twilio is going to try to get there - and they have made some progress
that's made it difficult to mimic on the backend.

I would hope that their cost structure is flexible enough to allow them to be
competitive in the high volume space. That may not be nearly as much margin,
but at one point in time, only 2 years ago, 2 customers made up 35% of their
revenue (from what I had heard).

Take any developer that knows nothing about telecom and start dialing in
seconds. That's extremely addicting - but it is quickly replaced as those
bills rack up with pretty small volume pricing discounts.

Switching from twilio to us? Easy. Change the URL.

Switching from AWS - with the insane amount of APIs and toolkits that entrench
you into it's structure to someone like rackspace or google? Much more
difficult.

------
breaker05
Good for them! I love their service and use it on GoatAttack.com

~~~
enewcomer
I love goats. Out of curiosity, would you be willing to share how well goat
attack packs have been selling?

~~~
breaker05
Well I've goat to tell you, we send a lot of goats! To give you an idea, since
we launched April 2015, we've sent over 2 million messages.

------
stanmancan
This is the first time I've ever looked through an S-1 before, but in the
Risks section they say:

    
    
        We have a history of losses and we are uncertain about our future profitability
    

Is it normal to go public when being uncertain if you'll ever be profitable?

~~~
ProblemFactory
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."

~~~
hawkice
I cannot disagree with your attitude more. This company is saying they have an
existing threat to their ongoing operations that _will_ be fatal, that they
are unsure will ever be solved. This is fundamentally different than saying ad
blockers could impact Google's business.

In a way, their honesty is unexceptional because they are required by law to
be honest about their risks. But the level of risk is not usual.

~~~
hueving
Wide spread ad blocking would be fatal or nearly fatal to Google. The loss of
the vast majority of their income and the resulting contraction that comes
with that would probably tear apart the company.

~~~
rudolf0
Near-universal ad blocking (across all kinds of devices) would be fatal to so
many different businesses and business models.

Revenue primarily derived via ads seems kind of unsustainable at this point.
And the same may even eventually be true of TV commercials.

------
rottencupcakes
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.

------
liquidise
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?"

~~~
rory096
We can't complain about individual (non-accredited) investors getting locked
out of fast-growing tech companies _and_ simultaneously complain when
companies IPO when they've reached significant revenue but not yet hit
profitability.

IPOs are a capital-raising event; if companies only did them when they were
profitable they'd be no more than VCs cashing in after they've milked out all
the good upside potential.

------
andyfleming
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.

~~~
ben_jones
They also have competitors [1].

[1]: [https://www.quora.com/Who-are-Twilios-
competitors](https://www.quora.com/Who-are-Twilios-competitors)

------
karangoeluw
I love Twilio, but I'm a little surprised they lost $35M on $166M rev in 2015.
I thought they were very close to profitability.

~~~
runako
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.

~~~
karangoeluw
It's just absurd that a company can't be profitable with 28M paying users some
of which include Uber and WhatsApp.

~~~
chrdlu
It's not that they can't be profitable. It's more along the lines that they
are re-investing all of their profits to grow the business. The market Twilio
is in has plenty of room to grow and Twilio has to aggressively capture it or
else someone else will. If they wanted to become profitable, they can. They're
just spending a lot to continue to double every year.

------
nickbaum
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:

[https://www.twilio.com/blog/2013/05/old-stories-new-tech-
sto...](https://www.twilio.com/blog/2013/05/old-stories-new-tech-storyworth-
captures-family-memories-with-twilio-voice.html)

Really glad to see their continued success!

~~~
Nicholas_C
Amen. I'm a hobbyist programmer and a while back I used Twilio and was amazed
at how easy it is to use.

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
"Disrupt" appears 18 times in this filing. Is that code for "one day we'll be
profitable, I promise!"

------
tqi
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)?

------
tschellenbach
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!

------
shaqbert
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...

------
joshhart
Not even cash flow positive. Stay away.

~~~
polmuz
Yes, but the deficit/revenue is falling fast 2013: 53% 2014: 30% 2015: 21%
2016Q1: 11%

~~~
allworknoplay
Yes, because they've cut sales/marketing/g&a hugely as % of sales. Their opex
profile now looks more like a normal, mature software company. Pity they still
(and prolly always will) spend nearly half their revenues on
connection/network fees.

Sucks to be a phone company / utility. Difficult business to rock even when
you're an amazing, innovative, unique company like twilio.

------
patrickg_zill
I am skeptical, a bit, of their longterm ability to fight off margin
compression.

What do people use them for?

If minutes of calling, inbound or outbound, that is trivial in terms of
switching costs.

If sms, there are plenty of competitors, including teli.net (disclaimer, I
know people that work there), haven't directly compared pricing however.

The real question to ask is how much lockin they have managed to generate.
Without lockin they will eventually suffer margin compression.

~~~
fenesiistvan
This is a good question since there are a lot of software available which can
easily replace the Twilio service, so instead of monthly payments you can host
it yourself for much less. I think that Twilio is doing well only with small
customers as the biggest customers could save a lot by self-hosting the same
service. In fact you just need to install an Asterisk or some other Softswitch
and on the client side use something like the mizu webphone which has all the
Twilio's capabilities like API for call, video, chat, SMS, presence and
others.

------
kumarski
I send 1M texts a week.

[https://www.quora.com/Who-are-Twilios-
competitors/answer/Kum...](https://www.quora.com/Who-are-Twilios-
competitors/answer/Kumar-Thangudu) \- My answer to who are their competitors.
The list of competitors is massive.

------
firebones
Ctrl+F patio11. What? There's no patio11 comment here. Surprisingly "quiet".

[https://en.wikipedia.org/wiki/Initial_public_offering#Quiet_...](https://en.wikipedia.org/wiki/Initial_public_offering#Quiet_period)
(???)

------
josefdlange
As a naive nincompoop, is there any way for me to guess the initial price of a
share when they become available?

~~~
allworknoplay
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.

~~~
kibibyte
Also, I think it's generally not a good sign if you, as an individual
investor, are able to get in at the offering price; it generally means that
the big institutions didn't really want in on those shares, which wouldn't
instill much confidence in the stock.

------
m1117
Ha! I was able to accidentally guess 3 weeks before the IPO
[https://twitter.com/MikeTweetFeed/status/725077010796539904](https://twitter.com/MikeTweetFeed/status/725077010796539904)

------
cissou
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?

~~~
sulam
Do you want to see the overall size of the pool? That's simply shares
outstanding. Do you want to see shares owned by specific people? That's only
going to be there for the largest holders. Keep in mind shares outstanding is
almost certainly larger than the existing options held by employees for a few
reasons. First, people probably haven't vested their options completely in
many/all cases. Secondly, some reserve is maintained for anticipated hiring.

The S-1 doesn't reveal every shareholder or potential shareholder (either
unexercised option holder or still vesting). You can get into this somewhat
when you look at compensation expenses. Some portion of that is shares granted
-- but that's only a retrospective number.

~~~
cissou
OK thanks, it was more to get an idea of "how much stock do the employees own
vs. VCs and execs" but it looks like we don't have enough data to compute that

~~~
sulam
You can get an idea of this just by using standard funding math. Series E
means investors hold 70% give or take. Execs hold 20-25% of the remainder, and
rank and file employees have < 5%. One factor here that is meaningful --
original shareholders have taken money off the table, meaning they've given up
ownership in the company to investors in exchange for cash. I don't know if
that offer was made equally to all shareholders (I've heard a lot of good
things about Twilio, so I imagine it was) -- which is why I say < 5% -- the
number would be larger otherwise.

------
tyingq
I'm curious what protects Twilio from a race to the bottom in pricing from
competitors. The barrier to entry here seems fairly low. There's Plivo, Nexmo,
Tropo, Sinch, and probably others. Some of them appear to have reached near
feature parity with relatively low spend.

~~~
kevinburke
Sure:

\- Reliability of the core service... if you receive inbound calls/SMS, you
need to be available 24/7.

\- Better/cheaper carrier integrations in more countries. Getting local
voice/SMS enabled numbers in every country is a very manual process, you have
to go to each country and negotiate deals with local providers.

\- Better international routing

\- In terms of the core products, features like Copilot, Notify API. Also
voice features like conferencing are very hard to do well; Twilio does them
well.

\- Better fraud detection and prevention - see
[http://www.nytimes.com/2014/10/20/technology/dial-and-
redial...](http://www.nytimes.com/2014/10/20/technology/dial-and-redial-phone-
hackers-stealing-billions-.html?_r=0) for an example.

~~~
tyingq
Interesting. Is it commonly agreed that Twilio is better at all these things?
(It appears you worked at Twilio for a couple of years).

I've used Plivo, and it does have reasonable conferencing features, and I
didn't note any issues with reliability. I only used it for US calls, but they
seem to have an extensive list of other countries supported.

I've not used the others on the list, but they all have fairly impressive big
name client lists. That's fairly hard to do if there's a leader in the space
that's outclassing you on all fronts.

------
joshuakarjala
Still can't get an inbound SMS number in Denmark. Damn you TC gods

------
cmcginty
Did they actually set the expected value of the stock to $.001/share?

~~~
cloudjacker
No, thats not what par value is

------
JackPoach
$40 a million is a lot of cash to bleed.

------
ramoq
Authy (YC) acquisition was a bust.

~~~
original_idea
How so? I was at Signal and they seemed to have a pretty good 2FA model.

------
hamana

      >  Jeff Lawson(1) --- 8,623,617 --- 11.9%
    

How pathetic is this? Around 90% of the company is taken by the vulture
capitalists and you, as a founder, only get to keep 12%. Bill Gates at the
time of Microsoft's IPO had around 50% of the company.

~~~
evanpw
From a 1986 Fortune article: "With pretax profits running as high as 34% of
revenues, Microsoft needed no outside money to expand."

[1] [http://fortune.com/2011/03/13/inside-the-deal-that-made-
bill...](http://fortune.com/2011/03/13/inside-the-deal-that-made-bill-
gates-350000000/)

~~~
hamana
Why doesn't Twilio have 34% profit margin? Because their price is low and
their costs are high. If they increase the price of their product and cut
certain costs, they would have similar profit margin to Microsoft.

~~~
nostrademons
The big question is the elasticity of their market. Microsoft could charge
high prices because they were pretty much the only game in town first for
microcomputer programming languages and then for PC-compatible operating
systems. If they raised their prices, what would their customers do? Not write
software? Write for a platform that has no users?

If Twilio raises their prices, will they make more money? Or will it cause
people to not use Twilio, either opting for competing free services or using
alternatives to SMS entirely? I don't know, and I don't think Twilio does
either; hence the profitability risk.

