
Twilio stock plummets as major client Uber distances itself - prostoalex
https://techcrunch.com/2017/05/02/twilio-stock-takes-a-nosedive-in-after-hours-trading-on-weak-guidance/?ncid=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29
======
lpage
The TC article is light on details compared to the actual call and 10-K.

Uber was 12% of total rev at the start of 2016, and 17% later on. WhatsApp was
the next largest at 9% for the year. Concentration falls off from there, with
the 3rd largest customer at 2%.

Twilio's initial (unamended) S-1 filing uses Uber as a customer case study
[1]. They called out WhatsApp as a business risk given that they were and are
a variable account (15% of their business at the time). Uber was not,
potentially because they're a Base Customer Account, but as noted in in the
10-K [2]: "its usage historically has significantly exceeded the minimum
revenue commitment in its contract, and it could significantly reduce its
usage of our products without notice or penalty."

[1]
[https://www.sec.gov/Archives/edgar/data/1447669/000104746916...](https://www.sec.gov/Archives/edgar/data/1447669/000104746916013448/a2227414zs-1.htm)

[2]
[https://www.sec.gov/Archives/edgar/data/1447669/000104746917...](https://www.sec.gov/Archives/edgar/data/1447669/000104746917000800/a2230935z10-k.htm#dq43801_item_4._mine_safety_disclosures)

~~~
Neliquat
To me, that seems like an excelent risk profile, and no reason to sell. Uber
seems to have a stench to it lately, and to be free of that large customer
influncing your growth is a net positive. But stocks react in real time.

------
lucasmullens
You know where I am nearly every single time I get an Uber or Lyft? Right
outside my building, where my phone is hanging onto a Wi-Fi connection that
won't work from there. Maybe it's not as common as it is in my life, but SMS
seems essential until phones figure out how to deal with the Wi-Fi limbo
state.

~~~
chambo622
This is very accurate. I've gotten in the habit of manually killing my phone's
WiFi as I leave my apartment and start walking down the hall calling a
Lyft/Uber, and the same when outside my office. This remains an unsolved
problem.

~~~
theossuary
It really isn't. It'd be trivial to allow mobile data to always supplement
wifi data. There are apps that do this already ([1] and [2]), and some phones
have the option as well (either stock or as a ROM). The problem are cellular
data caps, nobody wants to blow their caps by using cellular when they could
be using wifi only. There is no way for wifi to know when you're about to lose
coverage, or have spotty coverage; the only way around it is to always have
the mobile antenna connected to towers so it can take over. But that costs
money, many mobile phone companies even disable these options on their phones
to reduce congestion in their towers ([3], though it may be out of date now).

One day we might solve this problem, if we're ever able to pressure phone
companies into reinvesting into their infrastructure instead of their
investors.

[1]: [http://speedify.com/mobile-vpn](http://speedify.com/mobile-vpn)

[2]:
[https://play.google.com/store/apps/details?id=it.opbyte.supe...](https://play.google.com/store/apps/details?id=it.opbyte.superdownload_lite)

[3]: [http://forums.androidcentral.com/samsung-
galaxy-s5/402722-ho...](http://forums.androidcentral.com/samsung-
galaxy-s5/402722-how-enable-download-booster-sprint-t-verizon-galaxy-s5.html)

~~~
acchow
You can enable Wifi Assist on your iPhone to automatically switch to Cellular
data when Wifi is weak.

~~~
luhn
I've heard too many horror stories of people blowing through their data caps
because Wifi Assist was too aggressive.

~~~
macNchz
I disabled it after my phone freaked out one day and kept re-downloading the
same few hundred iTunes songs over and over, blowing past my data cap and
costing me $30 in overages, all while it was asleep on my desk (albeit
mysteriously very warm).

------
cyberferret
I seem to have missed it in the article and from reading the comments here,
but what exactly is Uber's reason for moving away from Twilio? Are they
building their own comms & SMS infrastructure in house? Are they big enough
now to work out bulk deals with Telcos in each country? Are they spreading
their load across multiple comms providers?

In any case, I would have thought the move would have been planned well ahead,
giving Twilio time and notice to try and entice other huge customers, possibly
even Uber's rivals to step in and take up the capacity?

~~~
busterarm
Ex-phone company employee and someone who set up his own personal voip service
(Asterix server) with DID & Termination for dirtcheap "cell phone" service
here:

It's such an easy thing to do, but requires a lot of coordinated effort to do
correctly. A company of Uber's size definitely should be in-housing this kind
of operation and so should anyone with budget to hire engineers and a
competent ops team. Heck, the hedge fund I worked at had a dedicated telephony
team.

It's not sexy technology, so nobody wants to do it and that's where Twilio
makes all of their money. Expensive, but convenient.

~~~
pbreit
I would disagree. Twilio should be able to do it better and less expensively
than Uber. The only think I can think of is Twilio refused to lower its prices
or there's a glaring deficiency that Twilio is unable or unwilling to fix.

~~~
busterarm
Really? Twilio pulled in ~$277 million last year. Uber was supposedly 12% of
that.

You're saying it would have cost Uber more than $33 million and change to do
their telephony?

I strongly doubt that. Uber doesn't need all of Twilio's features. They can
build out just what they need much cheaper.

This is the same situation people find themselves in with AWS, etc. It's less
expensive _initially_. There's a point where this becomes not the case.

~~~
MarkMc
Twilio should be offering Uber a price which is just below the minimum it
would take for Uber to build it themselves.

Also, Uber management should be focused on other things which are much more
important for the future of the company, like the user experience, or self-
driving cars, or machine-learning algorithms to predict future traffic.

Uber should not be focused on pushing down costs because the opportunity cost
of losing focus is huge. It reminds me of this epic rant from Bill Gates:

[https://blogs.technet.microsoft.com/kaiaxford/2008/06/27/why...](https://blogs.technet.microsoft.com/kaiaxford/2008/06/27/why-
we-and-you-will-miss-billg/)

It's a funny story, but while Bill was focused details about a minor product
he was missing the opportunity to develop a search engine like Google, or
mobile devices like Apple.

------
elmar
A Guide To Twilio's $53.5B Opportunity, Why It's At Risk, And 3 Ways The
Company Can Win.

[https://exponents.co/twilio-market-opportunities-
risks/](https://exponents.co/twilio-market-opportunities-risks/)

~~~
appleflaxen
great write up.

when was it written? it's frustrating there is no date on the post.

~~~
daro
It's pretty recent; there is no date given but it references the Twilio 10-K
report from February 22, 2017.

------
josh_carterPDX
Love the spin the media is putting on Twilio's earnings call. Uber load
balances its traffic across multiple providers. Moving their traffic off
Twilio shouldn't be seen as a signal that they're distancing themselves from
Twilio. Twilio has a model that's hard to predict long-term revenue. This will
continue until they figure out how to get more high value companies to sign
contracts.

~~~
zzalpha
_This will continue until they figure out how to get more high value companies
to sign contracts._

So they can further concentrate their revenues? I'm sorry, no, that's exactly
the worst thing they can do. I'll refer you to this piece:

[https://www.inc.com/magazine/201206/jason-fried/huge-
account...](https://www.inc.com/magazine/201206/jason-fried/huge-accounts-
make-me-nervous-it-takes-a-village.html)

As mentioned in the TechCrunch article, this is precisely Twilio's problem.

Revenue concentration is incredibly dangerous for long-term prospects of any
operating business. Twilio needs to broaden their revenue base to stabilize
it, not find a few more whales that will dictate their future.

~~~
dkrich
Problem is that it's the whales that make them a $3 billion company. Snag one
Uber or Facebook and that's worth about a million small SaaS companies (I
actually don't think that's an exaggeration). Yes, if they leave you're in
deep trouble, but that's the business they're in. To acquire the number of
smaller companies that would account for the number of SMS messages that
Whatsapp sends would require so much time I think this stock would trade to
zero long before that would ever happen, if it were even possible to do.

~~~
busterarm
We're probably spending close to $200k/year for another company's services
that we're looking to build on Twilio to save money. We'd probably end up
paying 1/3 of that on their service.

We're just one company but there are many tens of thousands of companies with
the exact same LeadGen problems that we have to solve that just don't have
dedicated engineering teams attached to them yet like we do.

There are many other things that we could do on Twilio that would increase our
spend once that foundation is laid too that we can't do now and we would like
to.

We need zero touch from Twilio salespeople to make this happen -- it really
only costs them in infrastructure.

I would be willing to bet that Twilio spends huge amount of money wine & dine-
ing Uber and WhatsApp. Our (big internet advertising company, you fill in the
blanks) rep sure does take good care of us.

------
fujipadam
As a hobby, I have been studying "oversold" stocks for the past month and am
starting to see that the market is prone to over reactions. AMD and RTTR for
example are stocks that were drastically punished for no good reason. I am
assuming here is where Warren Buffet like folks buy. That said Twilio does
seem to have a reason to tumble. The risk of losing WhatsApp also is too high
for this valuation

~~~
mholmes680
I think your assumption on Buffett is wrong. Buffett finds companies that have
a significant competitive advantage (moat) and prefers stable, blue chip,
traditional brand names, preferably with dividends, that are most likely to
just keep growing. And then from that group, he finds the best pricing in
industries he understands to be good businesses. Buffett wouldn't touch a
company like AMD, punished or not. When Buffett does it right, he's
specifically mitigated the risk of a stock getting punished well ahead of
earnings.

I'm interested to learn what you've found on oversold stocks though - have
anything written up?

------
jaxn
The reason companies move away from SMS is because they are using it wrong.
SMS is for two-way communication and not notifications.

I have a small company that is having great success with a niche product that
uses SMS as a two-way customer communication platform. SMS is perfect for
customer service (universal, no app to install), but it hasn't caught on yet.

SMS notifications are like noreply@ email addresses.

~~~
Kiro
You're just speculating.

~~~
bartread
I tend to agree with you. Examples:

\- My local garage sent me an SMS notification when my car's MOT was due. The
notification included the number to call to book it in.

\- My bank sends me SMS notifications if my current account goes overdrawn,
giving me time to log in to their app or online to transfer funds before I
incur any charges.

\- A couple of the local taxi services send SMS notifications when my taxi is
arriving (this isn't Uber - it's made it to Cambridge but they have very few
vehicles so it's hopeless).

These are all perfectly valid uses of SMS for one way
communication/notification, or communication where the response isn't another
SMS.

------
CephalopodMD
As a layman, I don't understand.

I mean it's bad news, but they may probably lose 12% of their business vs a
30% stock price drop while still hitting estimates (admittedly at the low end)
for revenue this quarter. The price should definitely drop, but why is this
not an overreaction?

~~~
tedmiston
It _is_ overreaction. Give it a few days and it'll bounce back from where it
is now.

[http://www.investopedia.com/terms/o/overreaction.asp](http://www.investopedia.com/terms/o/overreaction.asp)

~~~
stouset
If you believe this, you should be happy to put your money where your mouth
is.

~~~
tedmiston
We'll see what it opens at :)

For the record, right now Google shows TWLO at $23.65 after hours from an end
of day close at $33.94.

~~~
stouset
Talk is cheap. If you have high confidence this is a temporary overreaction,
you should be absolutely _jumping_ at the chance to invest.

~~~
tedmiston
Of course it's not that simple. The stock is also very overbought right now.

That said, it's already at $24.94, up 5% from the after hours price.

------
sgustard
"revenue would fall between $356 and $362 million for the year."

There's a sentence that should be written more carefully.

~~~
neom
Yeah I read that and almost sold all my twilio stock till I dug in.

------
dade_
Twillio's business made no sense to me until now. I can build the exact same
apps for customers using SMS gateways for a lower rate. Sure, they provide a
single provider for a small company, but there are better features and rates
offered by local companies in each country. So how many small companies have
an SMS app that requires global SMS gateways?

From a technical perspective, I think what they built is great, but at rates
around a penny per message, how could I make a profit? A single large customer
such as Uber makes sense, but if your business success is based on a unicorn,
then good luck to you.

I really think that Twillio is first to market because of the inept management
of telcos, but how do you compete when they figure it out? Further, the rates
per message drop dramatically on a contract for volume, especially in the
wholesale market.

Then of course there is O365 Microsoft Skype for business, and I expect that
all of these capabilities will be available with their UCWA api.

~~~
caseysoftware
Before I worked for Twilio, I worked for an tier-1 SMS aggregator. Integrating
with the various providers - even in the US - was a pain in the ass and
connectivity fees started in the $10k+ range with monthly minimums and
10c/message iirc. When I played with Twilio then, I knew they'd win, it was
just a matter of when.

When I joined Twilio, I focused on use cases that connected communications to
revenue.. either on the sales side or the customer support side. Sure,
1c/message in isolation seems expensive until you realize that by sending a
handful of messages (aka pennies) and being more transparent with customers,
your churn drops (aka dollars). At that point, it's not even a debate.

On the international front, it got even more complex. The aggregator I worked
for had contracts in the US, LATAM, and throughout Europe, each one had
different interfaces, connectors, and agreements. Twilio has one. Once again,
not even a debate.

Disclosure: I've been out of Twilio for 3.5 years, so no inside info here but
I still have shares.

------
the_common_man
Twilio is really a one trick pony. As messaging apps proliferate, the need for
sms/telephony will slowly die out.

~~~
josh_carterPDX
Not sure I would say that. They have voice, video, messaging, SIP, etc. They
have a lot of tricks.

~~~
stale2002
They've got a lot of attempts to expand to similar markets, but the problem is
that most are second class.

Twilio is the market leader for developer SMS, and voice.

They are not the market leader for any of the other categories that they are
trying to expand to.

~~~
chrsstrm
As someone looking to work with both programmable video messaging and SIP
trunking in the very near future, can you name competitors that do it better?

~~~
stale2002
It doesn't matter. Pick a competitor at random and the competitor will be 100X
cheaper.

Twilio is good at one thing. And that is the developer experience.

If you are willing to pay 100X the price, in order to have awesome
documentation, then Twilio is the right solution for you.

Otherwise.... Well.... Anything else is probably better.

~~~
jessaustin
If that's true, it's hard to imagine why anyone at Uber's size is still using
Twilio.

~~~
phamilton
Because big contracts give companies leverage for discounts. Netflix, for
example, pays way less than AWS on demand pricing.

------
derefr
What are the margins on Twilio's business model, anyway? People are always
saying that at medium-scale with a non-spiky workload, IaaS is way more
expensive than your own servers.

So, in the same sense: at medium scale, is Twilio "more expensive than" a PBX
+ business SIP line + custom glue programming?

------
hendzen
How much of Twilio's revenue comes from unprofitable VC-funded companies?

~~~
zachsnow
I have no idea, but profitable companies use it regularly. The larger question
is whether enough smaller, profitable companies exist to backstop losses from
larger, (unprofitable) companies abandoning ship to continue their growth.

------
thogenhaven
IMO, the market is vastly overreacting. It's only natural that the customers
that grow very big (e.g. Uber) eventually build a proprietary alternative to
cut costs. That doesnt mean that the need for the service is generally
declining

------
bluetwo
For the record, working with a company because they fill a need in which you
lack expertise and then creating your own version that reduces your need on
them is called a switchback.

~~~
sitkack
Which totally makes sense from a game theoretic standpoint. I rent a car while
mine is getting fixed. I stay in a hotel for a week while a renovation is
done. I rent to own while I look for the right thing to buy.

The cloud is literally rent-a-wreck or rent-to-own furniture. As a cloud
provider you constantly have to be adding more features and "value", otherwise
the customer will build in house. And not just to cost reduce but to get
transparency of ops. Clouds are opaque, companies are wise to launch on cloud
then bring in house for lots of reasons.

From the cloud providers side, view each individual customer as ephemeral.
When you have a single huge customer, you aren't a business anymore, you're a
contractor.

------
venture_lol
What is the number one Twilio differentiation? The price or its APIs?

~~~
gkoberger
At this point, marketing/mindshare is #1.

(That being said: they are priced competitively, do have a great API, can do
things may others can't (ie MMS), and have great deliverability across
carriers.)

~~~
jorangreef
"That being said: they are priced competitively"

Twilio is perhaps one of the most expensive of all SMS gateways.

Twilio's achilles heel is their value-added approach to pricing what should
instead be priced as a commodity, i.e. cost-plus pricing supported by vertical
integration and economies of scale.

------
staticautomatic
"What at first glance appeared to be a positive story very quickly divulged
into a financial nightmare."

Just wanted to point out that the author is a bit of an idiot.

------
eggie5
what is Uber going to use instead of Twillio?

~~~
phamilton
Once you get to the 1 billion sms per month range, you can actually just
become your own carrier / MVNO.

------
animex
I'm surprised Facebook hasn't absorbed / internalized WhatsApp's SMS
requirements.

------
_pmf_
Twilio's business model is not having to call a telco account manager.

------
uladzislau
As far as I know Uber goal is to replace all of the 3rd parties APIs/products
they're using with built in-house. So I guess any company having Uber as a
major customer should be concerned.

~~~
nodesocket
Where did you hear this? Have a source?

~~~
venture_lol
All large enough companies would consider this. Why pay someone else when you
are the driver for economies of scale?

------
kamilszybalski
Customer concentration risk is a real thing.

